Am I Financially Agnostic?

I am not new to investing.  I have been an individual investor for a couple of decades.  Over that period of time, I have seen it all.  There have been booms, bubbles, and busts.  As the result of my experience, I wonder if I have become financially agnostic.

Over that same period of time, I have not sold low as the markets bottomed out or experienced irrational exuberance when the market soared.  My goal has always been to reach financial independence by way of investing in stocks and bonds.  As the result of studying personal finance, I knew that markets go up and down.  Corrections and recessions occur.  They are an opportunity to buy low and to build long-term wealth.  When I started this journey, my time horizon was long and my risk tolerance was high.

Following 9/11, the markets melted down.  My Mom asked me if I was going to sell my stock holdings and not risk losing all of my savings.  I said nope and kept buying. The markets did not recover for more than three years and I did not deviate from my plan.  With every paycheck, I just kept dollar-cost-averaging into my investment accounts.

My response was similar following the market crash of 2008.  My wife asked if we should sell all of our stock holdings.  I said nope because we had a couple of decades to go until we retired.  I kept our asset allocation the same and kept dollar cost averaging.  2008 was scary and I did not know that the next bull market was only a few months away.

The same can be said for chasing performance.  When I started investing, day-trading and investing in technology stocks with high growth potential was crazy.  My experience as an investor was limited, but my gut told me that making money was truly not that easy.

During the early 2000’s, the real estate market was heating up.  Credit was easy to come by.  People who should not have been given loans were signing for variable rate mortgages without knowing the consequences of what future potential rate hikes would do to their monthly payment.  Investors without any real estate investing experience were flipping houses and condos all over the county.  Again, my gut told me to say away because I knew that making money was not that easy and speculators tend to lose their money when the markets make a turn for the worst.

So, why do I ask if you think I am financially agnostic?  It is not because I have no faith in capitalism or the global economy.  There is proof that investing in a market-weighted portfolio has worked in the past and I believe that it will continue to produce results in the future.  There will be ups and downs, but this type of investing will always provide average returns.

I classify myself as being financially agnostic because I do not believe in anything other than investing in a couple of index funds.  I do not know what the future market returns will be.  Whatever the markets do return, I am positioned to capture these returns.

Based on past performance, there are many financial institutions that I have no faith in.  They have mostly failed investors in the past.  They will continue to mislead in the future.  There is no way to know when to trust them and when not to trust them.

Financial Media

Even though it has improved to some degree, I have little faith in the financial media.  Yes, they have come around to indexing, but that does not sell advertising.  The financial media is out to make money and sell advertising.  The five hot stocks that they say to buy for summer will be different from the best wealth-building stocks they suggest for winter.  Fear sells magazines and newspapers.  It does not build wealth.  If the authors of these articles or the talking heads on television knew so much, they would be out making their own fortune and not reporting about financial news.

Financial Advisors

I have no faith in financial advisors.  Yes, there are some good fee-based financial advisors.  Most, however, are just salesmen.  They are just out to make a buck and do so by selling complicated investment products that come with high fees and low performance.  Collin Cowherd once said, “I trust Smith Barney when it comes to managing my money, but not Barney Smith”.  I guess Smith Barney has not done much better since they are no longer in business.  There has been some legislation around the financial industry to improve the quality of advice that financial advisors sell, but the financial industry has fought the concept of putting their client’s interests ahead of earning a commision.  There is currently no proof for me to trust these people with managing my money.

Actively Managed Mutual Funds

Professional money managers do not have a track record that garnishes much faith.  You would think that an actively managed mutual fund would outperform the index that they are benchmarked against, but the vast majority don’t.  Some outperform the index they track for a year or two.  Over the long hall, most actually underperform the index and go out of business.  They also are inefficient from a tax standpoint due to turnover as the result of all of the buying and selling of stocks within the fund.

The Financial Journeyman

This might or might not come as a surprise, but I also have no faith in myself when it comes to picking investments.  If both the Barney Smith’s and Smith Barney’s of the financial world cannot do it successfully, who am I to think that I can find alpha over the long term?  Easy answer, I cannot, so I do not even pretend to have any faith in my finite ability and resources to beat the market averages.  That is why I invest in my Sweet Dreams Portfolio and don’t pay too much attention to the markets.

History & Experience

Since I have little to no faith in all of those major financial institutions because they have all failed in the past, why do I have faith in the stock and bond market as a whole? My faith is based on experience.  By investing in index funds, an individual investor will outperform 90% of their peers.  I have captured average market returns for decades.  Those returns have allowed me to reach financial independence long before most people in my age group.  I have faith that my balanced-growth portfolio will produce average market returns.  By combining average market returns with a high savings rate and prudent living, I have faith that I will be able to retire early.  When I do retire, I will follow a similar approach with some scaled back risk during the drawdown period.

Conclusion

In life, I have learned to draw conclusions based on the evidence that is presented to me.  It is impossible to have trust in the financial industry that is not willing to take on a fiduciary responsibility.  Just as their goal is in to maximize ROI for shareholders, my goal is to earn the highest returns at the lowest costs to fund my retirement.  Up until this point, as well as moving forward, my faith is in playing the averages.

Are you financially agnostic?

Do you have any faith in the financial media, intuitions, or your own abilities as an investor?

Or, are you like me and believe in average market returns are both available and good enough to carry an investor too and through retirement?

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4 thoughts on “Am I Financially Agnostic?

  1. Patrice | Financial Peacock

    I’m with you. Low cost index funds all the way!

    I got really upset when I saw how a financial advisor was “managing” my elderly dad’s finances. It was all about commissions for the “advisor”, not what was best for my dad. I’ve since been helping him instead.

    Reply
  2. Leon @ Make Save Invest Money

    Interesting post, here are my responses below:

    – Are you financially agnostic?
    Nope.
    I know what I believe and believe what I know.

    – Do you have any faith in the financial media, intuitions, or your own abilities as an investor?
    I try to ignore the background noise of the financial media and do my own research.
    Therefore, I am continually learning and developing my abilities as an investor.

    – Or, are you like me and believe in average market returns are both available and good enough to carry an investor too and through retirement?
    I don’t like being average in anything.
    I think if anyone is happy with “average” market returns from investing in index fund, then that is fine.
    The historical market returns in the USA and UK are good.
    But you can do better.
    You say “most” fund managers cannot beat the market average. However, there is a small number of mutual fund managers that can beat the market year after year and the returns are better than index fund after fees.

    Reply
  3. BusyMom

    Whatever little I know about investing, they all came from various blogs like yours. There are fields where I know things, but investing is not one of them. So I invest everything I can in low cost index funds and ignore whether the value goes up or down.

    We sold all our equity as soon as the markets came up after 2008. Didn’t lose anything, didn’t make much. We were buying a home.

    We may have sold it earlier – except we had an infant son, no sleep and no time to worry about what was happening to our investments 🙂

    We are prepared for the next time. We have thought about a lot of possible scenarios, and what we would do. Making the decisions now, when the emotion is not part of it, will probably make it easier. All we have to do is follow it – and try to make a similar decision when the one thing we haven’t thought about happens 🙂

    Reply
  4. theMayor

    Financially agnostic and confident in my abilities to match the market returns!

    I was lucky. I had a finance professor who said, “if I knew how to beat the market, I would not be standing here, writing a book or telling you how to do it. I would be independently wealthy!”

    Reply

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