There is nothing like investing when it comes to exposing yourself as a weak-minded gimboid.
I know all about buying stocks low and selling high. I understand the rationale behind Warren Buffett’s aphorism, “be fearful when others are greedy and greedy when others are fearful.”
Yet when my portfolio hits red, I fret. And when my return numbers glow green, I feel the pleasure centres in my brain light up like Vegas.
The uptick in fortune means it will cost me more every time I buy additional equities, of course. But hang the expense, I want to be a part of this now! The party’s on and I need to get my snout in the trough, quick.
I know this because despite being a good passive investor who pound-cost averages and rebalances annually, I am not an entirely mechanical man.
And oh, the flesh is weak.
Only flesh and blood
You see I have long allowed myself a measure of freedom when investing – a certain amount of money to put into the market every year that isn’t dictated by the calendar.
Don’t get me wrong. This isn’t a gambler’s float, used to punt on some company that’s rumoured to be on the verge of discovering cancer-curing jam. I invest my discretionary dollop in index trackers. However I’m free to do so whenever I wish.
Sounds good? The snag is that in reality I’ve struggled to take the plunge when the market has. I haven’t always been brave enough to blow my ammo when equities were relatively cheap. I’ve held on and on until the upswings, and then got less for my money.
Oh, of course I had my excuses. My brain was on hand with plenty of self-justification every time to reassure me that reason was in control, not instinct:
- I was worried about my job.
- My company was restructuring.
- My monthly drip-feed was already casting cash into the cavernous cake hole of the capital markets.
- I better not throw in any more in case I’m axed – then I’ll need every penny.
But in reality the overweening fear of loss was in charge.
In fact, what this optional investing has taught me is that I am just one of the herd, a member of the cattle class.
I’m not special at all. I react and feel like everyone else who makes up the statistics that show this sort of irrational behaviour costs investors.
Gorilla warfare
It takes willpower to overcome the apeman within. And there’s evidence that willpower is in limited supply for all of us. We can’t bank on having enough in reserve when we need it.
So the fewer decisions that are left up to my meat-bag of a brain the better.
Passive investing would be much easier if I could program a robot to handle it all for me and to physically prevent my continued interference, like some benevolent Dalek with a taser. Ah, a lazy investor’s dream of the future.
Given that I don’t expect Amazon to ship me my own automatic investing droid anytime soon, I have instead automated as much of the investing process as possible.
You see, the one human behaviour that does work for me is inertia:
- I don’t stop the broker’s direct debit that comes out of my bank account.
- I don’t mess with the regular investment scheme that funnels money straight to my chosen funds.
- I don’t take money out of lock-in schemes like ISAs, pensions and fixed-term bank accounts, where a cost is imposed upon me for doing so.
Inertia is the great human pacifier. It’s a force that’s regularly more powerful than fear in my world – especially if the fear is intangible like an investing loss.
Eliminate all carbon units
There are other weak points of human intervention that could yet scupper my plans.
I can fiddle with my asset allocation every time I choose the next fund to buy and, boy, what mischief I could get up to when it’s time to rebalance.
So far I have resisted the urge to keep thrashing my winners but it’s always taken a stiffening of resolve, and a quick prayer of deliverance to the passive investing gods.
Will I do the right thing in the future? I can’t say for sure. I’m regularly tested and I’m only a passive investor.
If you recognise these weaknesses, then you might consider trying one of the so-called robo-adviser services that have launched over the past few years. These can still be enablers when it comes to self-destructive fiddling though, and they can be relatively expensive.
Perhaps the closest proxy for a truly hands-off investing robot is the Vanguard LifeStrategy fund series.
LifeStrategy is an index-tracking, fund-of-funds with built-in rebalancing features – truly automatic investing. All you need do is pick the asset allocation of your choice, set-up a direct debit to keep it oiled, and then let the program run.
With this sort of investing the human being is taken off the table – which is the point of the exercise after all – and everything is left to the robot.
No more worries about pesky emotion.
Take it steady,
The Accumulator
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A very good system. Out of interest which Vanguard LS fund would you go for? I think the LS funds are a great product and am looking at investing in either the 60 or 80% funds. I was even hinking of putting half my money in the 100% equity fund and the other half in the Global Bond fund.
Nice to know others have the same foibles from which I suffer! The hardest part of investing is separating emotion from intellect, I think. I can’t do it, and have realized (in retrospect) that even when I think I’m doing it, I’m not. The only answer for me is passive all the way…
I can’t think of a better way myself – after all, do you really want to live what life you have outside work trying to pick shares, funds, ETF’s, IT’s, bonds….really?? I’ve gone with 60% equity fund, but still have well over half in the latter stuff. I’m gradually switching it all over to Vanguard Life Strategy but even then I’m trying to be clever and time the market, waiting for the other stuff to rise before switching, knowing full well that the Vanguard fund will rise in tandem with the other stuff so negating the whole point of waiting to switch! But that’s human intervention for you!
95% of my fears relate to bank defaults, sneak comision rises and fund mismanagements
4% of my fears relate with eBanking safety
1% of my fears (or less) relate to market volatility or finantial crisis
I think I might be a ‘natural’ passive investor.
Greetings from Spain, excellent blog!
@ uhm
I have quite a lot in FTSE trackers, about a third of my holdings and the rest is in various shares. I am thinking of slowly moving the shares into Vanguard LS funds through Alliance. I am happy to take plenty of risk so am thinking of the 80% LS fund.
A good reminder which I’m sure will resonate with many investors. Maybe the key to success is to know your own weaknesses and to allow for these within your overall strategy.
Did anyone ever get to the bottom of whether III are selling the Vanguard Life Strategy funds? It actual comes up in list of funds I can add to my ISA portfolio.
http://www.iii.co.uk/investing/factsheet/ACDW
Mr Kidsgrove , you are right..nobody can be great in all things , if it worries a person to the point of sickness..perhaps they need to change their paradigm or continue to the extent that is livable for themselves.
We can never take financial advice properly until we have a fuller understanding ourselves of what the possible outcomes are & this is all part of the continual learning process.
Accumulator , i agree that inertia combined with perseverance works providing that the map you are using is over time helping you to achieve the result you are personally after.
Thanks for sharing your thoughts on the challenges of investing. Sticking with “buy low, sell high” seems simple, but in reality it can be very challenging when markets swing!
– Julie, social media manager at Nutmeg, a new UK-based online investment manager (launching soon!).
@Adam
No. I’ve just tried to buy ACDT (80% flavour) and ACDV (100% version) and it says
“this instrument is not currently tradable within an ISA”
So still SOL on that one on iii. Interesting development in that it’s visible, though 🙂
@ ermine
You can now buy these with iii in a Trading Account but not in an ISA for some reason. These Vanguard funds have only come onto the iii site in the past few days.
@westy22 Excellent, sounds like there’s some progress happening then.
I didn’t really like the chancers and con-artists of ISA providers that went with the original Vanguard article here. I don’t think there’s any call for a yearly holding fee or a charge to get your cash out of the ISA, though I’m quite happy to pay a trading charge.
Hope RDR doesn’t mean iii is going to go fees-crazy like HL 😉
@All — Last we heard, they were visible but not investable: http://monevator.com/hargreaves-lansdown-vanguard-funds/comment-page-1/#comment-155277
A good way to try to ensure the comments stay on thread is to use the ‘discuss’ tab at the top right of the site, which shows latest comments and so turns comments into a pseudo-message forum board:
http://monevator.com/discuss/
I appreciate that’s not perfect, but The Accumulator and I check latest comments regularly, and so do at least some of the regular readers. 🙂
Perhaps we should move the iii inquisition to that thread and leave this one to comments about our imminent robot masters. 🙂
@ Uhm – that’s hilarious that you think of ways to game the system even though you rationally know it makes no difference. I do the same thing. Somehow it’s comforting to think I have more control than I really do.
@ Dylan – 50:50, eh? The ol’ Benjamin Graham portfolio.
Accumulator,
If you were unsure about investing money because…
■I was worried about my job.
■My company was restructuring.
■I better not throw in anymore in case I’m axed – then I’ll need every penny.
Then your personal cash reserve (or “war chest” as I prefer to call it) is not big enough for your risk tollerance. Increase your reserve and you’ll not be worried that…
■My monthly drip-feed was already casting cash into the cavernous cakehole of the capital markets.
Instead you’ll enjoy buying shares/funds on sale.
Aside: It’s quiet easy to get > 3% in an instant access cash ISA at the moment and it is POSSIBLE that will out-perform your investments in the SHORT to MEDIUM term. So increasing your reserve while life is less certain MAY not damage your long term wealth as you can move cash to investments later when life is more stable. In my mind this is timing life (in a similar way to matching bond allocation to age) and is NOT timing the market. The former is sensible, the later less so (for me at least).
Just to add an interesting excerpt.
Efficient Markets Hypothesis only appears to match small standard deviations of 3 %.
As soon as you move out of that range , random walk begins falling apart..as it predicts larger deviations over excessively longer timescales which doesn’t bare out to actual market data.
The conclusion appears to be that wide market one day swings are in fact normal & can be clumped together in a shorter duration of years.
‘The Accumulator’… aka Jack Bogle? 🙂
@ Simon – Sadly your cool logic is a flimsy defence when a fevered brain is working overtime. The point I was really trying to make was that even though I’m pretty much a text-book passive investor, emotion and our capacity to post-rationalise are dangerous foes. Just admitting that can be a major step towards learning from the experience and fixing it. Partly the post was confessional, partly I wanted to find out if my experiences chimed with any of my fellow investors. My war-chest easily covers my needs, my real problem at the time was throwing extra money into a down market, even though I know I’m getting assets cheap. This is instinct not reason talking in these situations. My monthly drip-feed was going into the market (inertia is powerful) but I wasn’t strong enough to take the punt with my discretionary funds.
I agree with you that if life circumstances change then you should review your strategy. My circumstances hadn’t changed, so running into cash would have been market timing. Happily that didn’t happen. I don’t count a market downturn as reason for me to ‘time life’ as you aptly put it.
@ Davy Jones – yes, the reality certainly looks a little different from all those compound interest graphs that smoothly climb to the top of Mount Money.
@ Alex – That would certainly be a shock for Mrs Accumulator.
for updated posts would it be possible to put a diff of the update and original on the end of the comments?
@The Rhino — What do you mean a “diff”?
@TI – your a software engineer, you know what a diff is: https://en.wikipedia.org/wiki/Diff_utility
just some means of letting the reader know whats changed really..
@TheRhino — Cheers for the explanation. Yeah, I realized afterwards that’s probably what you meant (I haven’t coded for many years!) but it still seems more appropriate to write in English for all the human beings out there. 🙂
I can see why you’d ask for it and the logic but there’s no easy way to do it, I’m afraid. In this case it wouldn’t reveal much, anyway. Mostly we just tweaked a few words because The Accumulator is older than when it was first posted now, and has a much longer investing record, and I updated some links.
The post is 5+ years old so the percentage of readers who have both read it and remembered reading it is going to be very small. Especially as our audience was quite a bit smaller back in 2012. That’s one reason why I like re-publishing them. (The main reason of course is as a stopgap until @TA’s book is finally finished.)
For something like the Broker’s Table it’d be more useful, but I’d much rather put effort in other directions if we had time/resource on that, too. (Such as it always being live or offering dynamic calculations, for example — a project that has twice got close to going live but that I’ve had to pull for one reason or another near the end. Ho hum!)
> Warren Buffet’s aphorism
Two Ts in Buffett; again.
yes really critical to understand whats changed on the broker table – thats where a note in the comments would be invaluable. I think you did do that a few times, but maybe not every time?
some sort of interactive version of the broker table sounds difficult for sure, I can well imagine it has not been easy to push out..
@WNB — Thanks, fixed.
@TheRhino — I think we normally do it? The comments were playing up for a bit, which maybe muddied the waters. If there’s a lot of changes it’s not perhaps not super feasible from a time perspective, it already takes @TA pretty much a weekend to check every platform etc and fiddle with the table layout and formatting (which is creaking and on its last legs really). Agree, a change log would be optimal. Anyway, let’s leave this discussion here please as off-topic to this post. 🙂
Good to see you back, Accumulator.
I thumbsucked in early 2016 when I should have bought the dip.
What’s worse, I hate selling investments, even if they are funds, so I wait till I have new money to rebalance. Even if it means deviating from my chosen asset allocation in the interim.
Always worth re-reading the articles that explain why passive is the best option for majority of private investors. Would dearly love to see more articles on asset allocation featuring some model portfolios, and including alternatives (via ETFs and/or ITs). My preference is core (Vanguard Lifestrategy funds according to individual risk profile/age etc) representing 50-60% of the portfolio, then some additional small caps, themes e.g. biotech, property ETFs and Listed Private Equity as in IPRV. but always happy to learn from those more knowledgable on investing….
@Adam, I hold a III ISA stock and shares and have set it up to invest monthly into ACDV Vanguard 100%. I have been doing so for about a year with no problems.
Under the factsheet it say purchase info ISA and then Yes.
Not sure if i am perhaps reading comments wrong or misunderstanding when people say they can’t but it is definitely a stocks and shares ISA with III and it is regular investment 1.50 a go