Several years ago, our firm retained Miller McMillan, a copywriter, to help us with our website. Little did we know that he began investing using the methods we’ve been espousing in our newsletters and blogs. He asked if he could share his experiences.
First of all, I am not a professional stock picker. I am an independent investor who never studied business. Still, I told myself, “I’m not paying some broker to do this for me and charge me on the front end, the back end, and every in and out in between.”
I used to think there were two options for my IRA: mutual funds and individual stocks. Bonds were out of the question. One of my friends told me, “Just say no to bonds.” And I figured bonds were for people 65 and over who had “retired” from trying to make enough money to retire.
I tried mutual funds for several years, and from 1994–2000 I did well. Looking back, it was a no-lose environment. You could throw darts at the charts and hit winners. Janus, T. Rowe Price, Mutual Series—it didn’t matter!
But along the way, addiction set in. Those 20–30 percent profits were not enough. I got caught up in the exuberance of technology. I craved the high-flying funds that were amped up on tech stocks. Well, around 2001, things went south, and I lost big time.
Along the way, I had ventured into individual stocks. I reasoned, “Stocks can go up 5 percent in one day. That’s more than a lot of mutual funds accomplish in a year. This is a no brainer.” I paid the price for that, too. Clearly I did not have the genetic makeup to do well in the stock market.
Eventually, I came out of denial. It was time for recovery. No, I didn’t go to Betty Ford. I went to the sidelines. I dried out. I went into cash and some the most boring big companies I could find. I thought dividends were better than nothing, so I tried parking in places like Procter & Gamble, AT&T, Boeing—you know the names. That was a step in my recovery. Then I had a financial awakening.
Around 2007 I learned about ETFs. “Wait. These are just index funds with a fancy name. I don’t have any trouble falling asleep. No Ambien in my medicine cabinet. Why would I go the route of index funds and commit my IRA to years of sloth and boredom?”
Then I learned about asset allocation, the process of spreading my money around to various asset classes and periodically rebalancing. I found out about the law of compound returns and realized that it works if you stop trying to beat the market. Lower fees and fewer mistakes! Is this really how it’s done?
Market movements make money for managers, not individual stocks. That was an awakening for me. And I learned how markets moved in opposite directions. So if U.S. stocks were on the outs, other indexes would probably be moving up.
So I tried this new approach. Cautiously at first. Just a few ETFs. Although I had never fretted over my IRA at 3 am, I noticed that I was not so preoccupied anymore. “Mad Money” was less interesting than the Lakers’ game. The Wall Street Journal was still interesting, but I was not reading the financial pages first. I wasn’t checking my portfolio two or three times per day.
Okay. My name is Miller and I’m a stockaholic.
I still own a few large stocks. I admit it––I am not fully recovered. I still have a stash of McDonald’s, Apple, and a couple of other anonymous stocks.
But on the bright side, I am 90 percent invested in ETFs. I have U.S. stocks: small, medium, and large. Bonds: short, intermediate, and long. Europe (bad for the moment), Asia, Canada. TIPS (which performed remarkably well last year), emerging markets, REITs, global real estate, gold, and energy. I am diversified big time, with allocations appropriate for my risk tolerance, age, and planned retirement date.
I feel very comfortable with this arrangement. I don’t worry about the market. When I do check my portfolio, the “reds” are offset by “greens.” When one market is having a bad day, invariably the bonds or other markets pick up the slack. I’ve given up stocks for ETFs and gotten back my sanity.
Disclosure: The author is a paid employee of MarketRiders, a company that specializes in creating ETF portfolios.