Why a Financial Planner Told Me to Do Nothing With My Investments
Learning about personal finance is one of the smartest, most life-changing moves anyone can make. After all, a proper foundation of financial knowledge can improve your life in immeasurable ways.
Learning how to budget and build an emergency fund can help you create a life without money stress, for example. Plus, learning the best ways to invest for the long haul can mean having more money for retirement or even being able to retire earlier than expected.
But when it comes to money knowledge, you can reach a point where you have too much of a good thing. The sheer number of financial apps, investment platforms, and index and mutual fund options is mind-blowing. Plus, there's so much conflicting financial advice on the web — and even among financial planners — that it's easy to become overwhelmed.
San Diego financial planner Taylor Schulte says the investing world is one where it doesn't always pay off to be an overachiever. You might take courses in your spare time to earn certifications for your job, or maybe you work out more often to feel stronger, but you may not want to apply that kind of effort to learning about investing.
Why? Because, according to Schulte, taking an overly active approach to your investment and financial plan is unlikely to leave you better off.
Why you should do less with your money
Like most other financial advisers, Schulte suggests sitting down to create a sound investment and financial plan, preferably with a professional who might offer another set of eyes and some expert guidance. But once you have a financial plan in place, you should really stay the course.
Why? He says this is mostly because leaving your money alone gives it a chance to rebound when the market drops over time. Plus, moving your money from place to place in reaction to market trends means you never really give your plan a chance to work.
Here's a good example: Imagine you invested in Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) in 2007, right before the Great Recession took hold. This fund dropped a whopping 36.99 percent in 2008, which surely convinced some active investors that it was time to sell and buy into something else. In 2009, however, the value of VTSAX increased 28.83 percent. In 2010, it went up another 17.26 percent.
And really, it's only gone up from there. Where you could buy shares for $34.95 in February of 2007, the price surged to $72.04 by September 1, 2019.
Imagine if you had listened to your inner voice and dumped your shares at the worst possible time. You could have easily missed out on the rebound and invested your money in a way that didn't yield these results.
Why doing nothing fits great with my own retirement plan
I'm so glad I can lean on investing advice from Schulte and other fee-only financial advisers who can tell me the truth about money since they don't earn a commission for selling specific investments. And really, the act of "doing nothing" explains my whole retirement plan in a nutshell.
My husband and I are self-employed, so we invest for retirement using Solo 401(k) accounts as well as a brokerage account with Vanguard. We invest all our money into Vanguard funds like VTSAX and a few target date funds. We invest pretty much the same amount of money every single month across our retirement accounts and brokerage account, a strategy called dollar cost averaging. Other than that, we leave our funds alone.
After all, I don't want to make a mistake and move money unnecessarily when my investments drop in value. But more than that, I don't want to spend my time or effort trying to predict what the stock market is doing anyway.
Doing so would surely be a lost cause. No matter what any financial adviser says they can do, plenty of research has shown that the vast majority of financial professionals can't beat the market no matter how much they try.
In fact, recent research from SPIVA, an investment scorecard, shows that 92 percent of financial professionals who tried to beat the market failed last year.
The bottom line
It's commonly said that if you can't beat them, you should join them. That's how I like to think of the advice I received to "do nothing" with my investments, and how I perceive my own investment plan.
Instead of trying everything under the sun to make my investments outpace market benchmarks, I'm going to keep on investing regularly and let my money — and the power of compound interest — do all the hard work for me.
Most importantly, I'm going to do nothing and leave my money alone.