- Hello once again guys,
welcome back to the channel,
hope you're havin' a great day so far.
So what we're gonna be talking about in this video
is a very interesting topic that I haven't really
ever covered on this channel, and that is basically
the minimalists approach to investing.
Now minimalism is a type of lifestyle
that is actually very appealing,
and it's this lifestyle idea of less is more.
And you wanna have a simple and passive approach
to anything that you are doing,
and basically declutter your life,
and get rid of a lot of these annoyances,
or unnecessary parts of your life
that are consuming you, and bringing stress
towards your life.
And so what I wanna do is take that philosophy
and apply it to investing, and talk about
what might the investing strategy look like
for a minimalist who is looking for
the simplest, low stress approach to investing
and building their wealth.
And so what we have here is what many people
have dubbed the lazy investing strategy.
But what I wanna show you is that
in most cases being lazy is a bad thing,
but when it comes to investing,
being a lazy investor can actually work to your advantage.
And I'm gonna explain exactly why that is in a little bit.
So when it comes to investing in the stock market,
you have a number of different options.
You can go out there
and you can invest in a mutual fund
and let somebody else manage your money for you,
or you can also pick individual stocks yourself,
and be an active stock picker,
or do active portfolio management.
But a lot of people have no interest in researching stocks,
or spending two to three hours a week or more
you know, managing their portfolio,
and they just want a simple solution
that's going to allow them to grow their wealth
without causing them stress or anxiety.
And that solution is index funds rather than buying
into a mutual fund where an active stock picker
is trying to beat the market,
you're instead just going to own the market
through what is called a low fee index fund.
Now why I said the lazy approach
might actually be a better approach
is because these active stock pickers,
these professional stock pickers
are actually doing a terrible job
at beating the market.
So there was a study that looked at the success rate
of you know, mutual funds beating the market.
And what they found is that roughly one in 20 actively
managed funds beat the market, so around 5%.
That means if you looked at 20 professional stock pickers,
one of them out of 20 is going to beat the market.
The other 19 are going to fall in line
with the market, or fall under the market.
So just to summarize this here, you're paying
these professional stock pickers
to manage your money for you,
and 95% of them are failing to do the job
and actually get you a return
that exceeds the market.
And so that is where index funds come in
where you can literally just own the entire market
rather than trying to beat the market.
And you can do this in a very passive way
that aligns with that minimalist lifestyle.
So there's actually two strategies here
for you know, passive investing.
One of them is a hands on style,
that's somebody who wants to be a little bit more
involved with their portfolio.
And then there's a hands off style,
somebody who doesn't wanna do a damn thing,
and we're gonna cover both of those.
So first of all let's talk about the hands on
lazy investing portfolio,
and we're gonna talk about what is dubbed
the three-fund portfolio.
Now this comes right from Bogleheads which is a Wikipedia
page for investors, I'm gonna link it up
in the description below,
this article on the three-fund portfolio.
But it's essentially three ETFs that will allow you
to have well diversified exposure in both stocks and bonds.
The first ETF you're going to own is a domestic,
total stock market ETF.
You're capturing the total United States stock market
in a fund, and one example of this
is a Vanguard ETF called VTI.
Number two, the second component of this portfolio
is an international total stock market ETF.
So you want domestic exposure, as well as exposure
to global markets, and one Vanguard fund
that can accomplish this for you is VXUS
offering you international stock market exposure.
And in the third and final component
to this three-fund portfolio is simply a bond,
total market ETF.
Some exposure to bonds that way you're not so
heavily involved in stocks, and another Vanguard fund
that people often like is BND.
The amount you have in each of these three funds
is going to be different for every person.
In most cases, younger people are going to have
more risk tolerance, they have more time
to allow their money to grow.
So they're gonna have more money in stocks,
and less money in bonds.
As you get older, you wanna have less risk involved
in your portfolio, so you have more money in bonds
and less in stocks.
And overtime, you have to do what is called rebalancing
or basically changing around your portfolio
to make sure that those levels stay the same.
And that is what makes this the hands on lazy approach
to investing, is despite the fact that you're just
plopping your money into these ETFs overtime,
you are going to have to keep an eye on the allocations
and make sure that if you wanted to have 10%
of your money in bonds,
that it stays at that 10%.
Because the prices of these funds are going to change
all the time, and you're going to experience
what is called portfolio drift.
Now is that going to take a crazy amount of time?
Absolutely not,
you could probably accomplish this
with about 30 minutes to one hour a month of work,
even less if you can automate the entire process.
So we're not talking about a lot of time here,
and the advantage to this is this is as low fee
as you can go when it comes to investing.
You're not paying any management fees,
you're not buying into a mutual fund,
you own low fee index funds.
You're capturing exposure to the entire market,
and you're not trying to beat the market,
or actively involve your time with your investments.
Now the second approach to this is the hands off
lazy approach, somebody who doesn't want to be involved
pretty much at all with their investments.
They're not interested in learning about
portfolio allocation, and they know they're gonna
forget to rebalance their portfolio
so they're looking for something to help them with that.
And the solution for that
is the modern brokerage or robo-advisor,
and I'm gonna give you guys two different examples of them.
Now just to be transparent with you guys,
I am affiliated with both of these companies.
I have links in the description
if you choose to use them,
but you absolutely do not have to.
I just leave them there in case you guys
are looking to support, and give back to my channel
at no additional cost.
But number one here is a robo-advisor called Betterment
and what Betterment does for you
is they build a custom portfolio around your goals.
So if you're a 35 year old person who has student loans,
but you're also looking to invest for your future,
and you don't wanna manage your portfolio,
Betterment could build a custom portfolio
based around your situation.
And the advantage here is that they are going
to rebalance that portfolio for you,
and they're going to determine your allocations
and how they're going to change overtime.
The disadvantage, they do charge a 0.25% annual fee
to manage your money.
Betterment does give you peace of mind
because you know you're getting professional guidance
with your money at a very low annual fee,
and you don't have to do anything except for
add more money to that account every month,
or whatever interval that you are doing that.
Now if you're still looking for that hands off approach,
and you're not interested in paying any fees,
number two here is M1 Finance which is a cutting edge
brokerage company that has really disrupted the industry.
And that is because they offer an array of different
pre-built portfolios, they're not customized
or tailored to any one specific person,
but they are fee free,
you're not paying any fees to invest with them.
And one of the popular portfolios they offer
is called a TDF, or a Target Date Fund.
Essentially what you do is you put in
your ideal target retirement date,
and that portfolio is allocated with stocks and bonds
at a risk level that makes sense for that
target retirement date.
Now again, it is not tailored to any specific person,
but these pre-built portfolios are often times
a better option than going in there blind
and trying to figure out
how to allocate your own portfolio.
So that is option number two here,
using a pre-built portfolio
on the M1 Finance investing platform.
Now like I said guys,
if you want to learn more about M1 Finance
or Betterment, I've included some resources down below.
I have review videos of both of these platforms,
but I think they're offering great services
especially for the passive investor
who doesn't wanna be spending hours
every single week managing their money.
And if you do wanna do that,
if you wanna take those additional steps
and save those fees, you can be that hands on investor,
and I would consider looking more into
this three-fund portfolio which again,
is linked up in the description below.
But anyways guys,
that is the minimalist approach to investing.
Let me know in the comment section below
whether you are an active investor,
or are you more of a passive investor,
and why you've decided to you know, do this,
and what your idea is behind your investing strategy.
But thank you guys so much for watching this video,
I hope you enjoyed it, and I will see you in the next one.