Index Funds Help You Enjoy Life

When it comes to your assets, keeping track of your investments is very important. You want the money you’ve squirreled away to grow so that in the future you’ll have a nice little cache that you can draw on. However, it seems like oftentimes people focus too much time on investing such that other aspects suffer. For most investors, myself included, the time required to adequately research a company, especially if you don’t know how to read a balance sheet or an income statement, is a poor investment in and of itself. For this very reason I put the bulk of my funds into index or target retirement funds, this way I can spend more time enjoying life and less time researching companies (and I bet I’m bad at it).

A thousand dollars is quite a bit of money. It’s even more when you consider that it’s post tax money and you’ll likely need to earn around $1700 working in order to take home that $1000 (assuming you lose 40% to the aggregate of federal and state income tax, social security, medicare, etc.). So it’s no surprise that smaller time investors spend hours researching a company before plunking down a thousand dollars for shares of common stock. Doing research is very important and very necessary but when you consider that the stock market returns around 10%, all that time will likely result in earnings of $100 on that $1000. Wouldn’t time be better spent doing something more rewarding and less risky?

That’s where opportunity cost aspect comes in, which is to say that the cost of researching a stock is what you lose by not doing something else. From a strictly financial perspective, most workers would make more money working another hour than spending an hour researching their stock (ignore any non-financial derivation of value out of researching stocks, some people find it wildly entertaining). In fact, I’d argue that from a “life” perspective, most people would derive more pleasure out of doing something they loved than researching stocks. Fish a creek or read some balance sheets? Hit the links or calculate cash flows? That’s why index funds are freaking awesome, they let you do the things you love while still allowing your cache of nuts to grow.