Invest & Relax

As we have climbed our way up the first 11 steps, I have explained the benefits of being a long-term investor and the pitfalls of being a short-term speculator. I have warned against the dangers of stock picking and market timing. I have spelled out the problems with manager picking. I have pointed a flashlight at the silent partners lurking in the shadows. I've done all of it to get you to the point where you can tie yourself to the mast and resist the siren songs of speculation, and invest in a risk-appropriate, rule-based index portfolio.

As you've learned, the stock market has appropriately rewarded those who have invested for the long term. However, staying the course is difficult due to the bombardment of bad news that causes us concern about our economic certainty. For example, confidence was high on October 9, 2007, when the Dow Jones Industrial Average (DJIA) reached its peak of 14,164. The DJIA then steadily declined for over a year, followed by a sharp drop of 22% in the 8 trading days from October 1 to 10, 2008. The stock market then continued its decline over the next five months and bottomed out at 6,547 on March 6, 2009. Many investors pulled out of the stock market for the safety of money market funds during this prolonged and painful time period. The DJIA then shot back up, closing at 17,068.26 on July 3, 2014. Those who threw in the towel because they did not trust that prices are fair at all times, which causes the market to eventually rebound, have irrevocably hampered their ability to capture their share of the market recovery and capitalism.

Long-term investors understand the merits of indexing. But unfortunately, even those investors are prone to emotional decision making. For this reason, the right passive advisor fulfills a critically important role in investment success.

Step 12IntroductionMarket TimingManager PickingSilent PartnersActive ManagementSiren SongsDow Jones Industrial AverageDJIAPassive Investors