Getting a few extra percentage points of growth this year may be sexy, but unless you have a sizable portfolio ($100K+) your time is likely better spent elsewhere.
For talking purposes, let’s assume you can consistently beat the S&P 500 index growth by 2% or more every year. So if the S&P went up 10%, your active investing strategy can yield a 12% return in the same time. Good for you. You’re doing better than the majority of highly paid professionals. Buuut…
How much extra is that really? In a $10K portfolio, that difference between 10% and 12% is $200 ($1,200 – $1,000). $200 dollars a year. For all that work. If you spent 4 hours a week actively managing your $10,000 portfolio, your active management netted you about $0.96 an hour.
What if we 10x’d the portfolio size to $100K. You’re still only making an extra $2,000/year at a rate of $9.60/hour.
The point is, when you’re just beginning, optimize for saving more rather than actively trying to beat the market. How easy would it be to just save an extra $200/year and get back 200 hours of your life this year. Maybe don’t buy that new car, and save an extra $2,000? Maybe learn a new skill and change careers to make more money?
There are so many other things you could be doing to make more money than spending hours of your week chasing extra returns. Do the unsexy thing and invest passively in index funds while you focus on increasing income and growing the gap between your income and expenses.
P.S. This is day 18 of 30 in my challenge to write every day for 30 days. How have you been enjoying it so far? What would you rather see? DM me on Twitter @Josh_M_Newman if you want to chat!
Josh Newman 