Investors Ask: I want to set it and forget it. Can't I just lump sum into these 25 companies?
Issue #4
An investor recently asked me about lump sum investing into 25 stocks and simply set and forget about it for the next decade. An approach I am not particularly fond of. Let me explain why. But first, here is his question.
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I want to invest 100k this month into the following 25 holdings equal weight for 10 years and forget about it:
…
I believe all of these names will do well over 5-10 years and that they have a better risk/return profile due to current valuations than a world index ETF.
What do you think?
I’ve omitted the specific stocks for privacy reasons and because they are immaterial to my answer. However, it was a diversified list of well-established blue chip stocks.
My Thoughts
I am going to be quite frank. Picking stocks without the intent of managing your portfolio is financially reckless. A lot can happen in a decade. Even passive index funds manage their portfolios. It’s done through codified strategies with low turnover.
This basket of stocks may outperform a broad-based market index—I don’t know—but opting out of managing your portfolio you introduce unnecessary investment risk.
If you really want to just set it and forget, I strongly encourage you to invest in a broad-based market index. I did it for 15 years and never worried about my portfolio.
Elitist, Much?
I realize that my response may sound elitist, but it is not my intent to discourage new investors. I firmly believe that virtually anyone can learn to be a good investor.
But you need to have the right attitude.
You need to decide whether you want to be in the business of buying businesses or simply set it and forget it while you focus on the rest of your life.
Nothing wrong with that. But, as Warren Buffett once said,
you need to bring a certain intensity to the game.
Don’t get me wrong. You don’t need to dedicate your life to investing. But you do need to take it seriously. And that means to take an active interest in researching companies, monitoring your positions, and managing your portfolio.
Thanks for Reading
As always, I hope you found this topic interesting.
Let me know what you think in the comments!