Suggested Schedule For Lazy Investing

There are many blogs, news outlets, and advice channels providing the average Joe with a constant stream of financial news, opinions, and noise. What is a good way for a normal person to deal with all this information?

As horrible as it may sound, I would recommend that anyone who is serious about managing his own investments start by ignoring it all until he understands the subject matter. If you take the matter seriously, you can educate yourself quite thoroughly in 6 months to a year. Maybe that sounds like a long time, but it's a huge money-saver if your alternative is to pay someone 1% of your assets to manage your investments for the next 30+ years of your life.

How do you know that you've gotten to a point where you understand your investments? A test is to ask yourself whether you understand how a product is priced, what different parts make up the cost of owning that product, who issues the product and why, how liquid is it, what are the risk factors and how risky is it compared to other products, what is the expected return, what do you actually own, how can the product be taken away from you other than your selling it?

Understanding your investments is one part of freeing yourself from the constant barrage of questionable financial advice. Have a scan through some financial articles. You will find them peppered with non-committal words like "could", "maybe", and "looks like" with regards to current events. This is not really a knock against the articles themselves, since nobody knows for sure how things will pan out. However, once you understand your investments, you will be able to read these articles as opinion pieces instead of concrete tips.

Next, learn about investing history. Learn about the mass hysteria that has gripped investors in the past. Most people don't bother to learn about history and we find ourselves getting tripped up by similar problems later on. Our memories are so short that we even manage to crash the markets twice in the same lifetime.

[The above two points are very well covered and expanded upon in William Bernstein's book, "The Four Pillars of Investing". His four pillars are:

1. Theory of Investing
2. History of investing (how did people handle things before)
3. Behaviour of Investing (how your can emotions ruin your chance for success)
4. Business of Investing (how the mutual fund / brokerage / middleman industry bleeds you dry).]

Read books that are based on scientific research. "Educating" yourself by reading about hot investing methods that have no repeatable success is a waste of time.

So you understand investment products, you know how the markets can act, and you know how you should behave. Now is the time to form a plan. Spend some time to make it a good plan based on your researched knowledge, and then implement your plan. Just as it's not a good idea to invest without a plan that you understand, it's also not worth it to hold off executing a good plan because you are searching for the perfect one. Except in hindsight, there is no perfect plan.

You now have a plan, probably for your retirement that is many years away. If you've done a good job educating yourself, and you have confidence in your plan, you're free to let your plan run. If you want to continue learning more, by all means go ahead. If you like reading blogs and keeping up with the news, you now know enough to separate the good stuff from the noise. Tweak your plan every 6 or 12 months, and use the rest of your time to do something that will bring you better returns in some other area of your life.

Preparing To Invest: Read Some Books!

For many of us, the web has become an important learning tool. Search engines have made it wonderfully easy to find information on specific topics. But to me, the web, with no promise that content has been edited or is correct and complete, is not a great tool for getting comprehensive information on broad topics, which is exactly what you want as you prepare to invest.

There is also the question of how the site stays in business. For most, it means selling advertising, which raises issues of conflict of interest. For instance, can I trust a review of credit cards to be fair if the site also runs ads for certain credit card companies? How do I know that a comparison of brokerages is not biased when I see ads for banks running on the site?

The use of hyperlinks on web sites, while at the very core of what makes the web great, means that users can read about whatever pages they like on a site. But it also means that they will probably read only what they like. So structuring information on a broad topic is very difficult.

Newspapers and magazines have similar issues, and also need to constantly generate new content. It does not matter if there are not any new and useful ideas to write about--staying in business for them means writing new articles.

There are plenty of other learning methods, each with their own issues, like learning from chats with friends, or from TV.

To me, the best learning tools are books. Here's why I think so:

• Content is structured: Unless this book was written and edited carelessly, the content is presented in a logical progression. Focus is given to points that are important in the context of the broader topic. Articles on the web and in magazines and newspapers lose this context.
  
• Content is comprehensive: To many people, investing means buying stocks. I'm always surprised by how many people do not understand or consider bonds or other asset classes like real estate. A good investing book will teach you about the different asset classes and how they may (or may not) fit into your portfolio. Articles from other sources mainly focus on one point (usually stocks) and are not as able as books to present information in the context of the full spectrum of investing options.
  
• Once the book is in your hands, the sale is complete. Unless you've picked up a book that is trying to sell you another product, the content is not as influenced by advertisers.

To be sure, there are some books out there that are real stinkers--books written to evangelize the latest mania, to sell another product, short-sighted books, and just plain bad advice books. But all these problems also exist in the pages of non-books, without the positive points that books enjoy.

There is still a place for non-books, especially for doing quick research into specific topics or getting the beat of current trends. But while you are building a foundation of knowledge as you prepare to invest, go read some books!