Friday, January 29, 2016

There's the Time Value of Money - and There's the Value of Your Time

An underappreciated benefit of low cost, index-based investing is the modest time involved.  That is, in comparison to the time commitment associated with individual stock-picking or some other variant of active investment management.  The low cost, index-based approach gives an investor more time to enjoy other pursuits.  Such as time with family and friends, a good book, music, charitable and civic activities, hobbies (what's a hobby?) ... and on occasion a nice glass of wine.
Active investment management in contrast goes hand-in-hand with consistent if not constant dedication to general economic news, industry-specific business news, and company-specific news.  Attention to all the topics, risks, and developments described in detail in Securities and Exchange Commission filings or other disclosure documents that few investors read in time-consuming detail.  Attention that's paid by oneself or by compensating another to pay that attention.  (It's commonly forgotten that the word "pay" in the phrase "pay attention" is literal.  One pays with one's time, a precious, perishable, and irretrievable item.  A costly item.)     
"Found time" via indexing has value of course.  Value that may be hard to quantify, but quantification matters little.  Please remember this:  the average human life span is less than one million hours.
Concern yourself not with Chinese export trends and currency manipulation, Midwest factory capacity utilization, Janet Yellen's disposition, Vladmir Putin's territorial ambitions of the month, Apple's iphone sales during the most recently concluded quarter, the price of oil, or the like.  Or whether that company of which you hold many shares of stock will successfully bid that contract, win that lawsuit, or get that drug approved.
Instead, relax.  Yes, index-based investing consumes time - just not much.  For example, a little time is involved in prudent rebalancing.  That's time well-spent.  As is time taking advantage of opportunities to reduce one's investment costs, as cost pressures on investment managers of all stripes continue to lower costs.  And with "robo-advisors" and their increasingly sophisticated auto-pilot portfolios sprouting like weeds these days, the time commitment to be a responsible low-cost, index-based investor decreases even more.  
Unless an investor consumes the greater part of daily economic news for enjoyment or as a hobby - and seems that's a tall order with today's information proliferation - what's not to like about time saved?  Especially when coupled with low-cost, index-based investing that can be expected, as empirical studies time and again show, to yield higher risk-adjusted net returns?

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