ETF: Learn to love a lazy market

If you started 2019 feeling harassed, you must be invested in the JSE. The market has been unkind to all of us for years. You’d be forgiven for wanting to find better uses for your money – expensive champagne, for example.

In this post I’d like to make a case for dormancy. You might argue that I’m doing it to make myself feel better about the state of my investment portfolio, and you would be right. This is an article about why I not only stay invested, but keep investing, in ETFs.

Making up for lost time

The market has been stuck in first gear since I made my first investment in March 2014. In real terms I’m worse off than I would have been in a modest savings account. However, the past five years is only part of the story.

In the five years before I started investing, I was getting into and out of a lot of debt. Time and money that could have gone towards my future went towards correcting past mistakes. By the time I made my first investment, I had already been in the job market for six years.

People in the money business love to say that time in the market is much more valuable than timing the market. It’s almost impossible to make up for lost investment time, except when the market goes sideways. The terrible market has allowed me to build a portfolio at 2014 prices. I can’t make up for the time I missed between 2008 and 2014, but once I started, I focused on maintaining a high savings ratio. More savings power plus low prices will hopefully help me make up for some of the missing years once things recover.

If you’ve been earning an income for the past five years and didn’t get around to investing, this is your second chance at 2014. Don’t let it pass you by.

Learning ETFs

With my blend of local and offshore ETFs, my portfolio has mostly been above water over the past five years. Because I don’t check it every day, my experience has been similar to having money in the bank. Whenever my local investments have been under water, currency movements on the offshore component usually balanced the whole thing out. As a beginner investor I got to see how diversification can smooth out the investment ride first-hand.

I never had the greed that comes from buying a bull or the fear that comes with a 2008-style crash. If I had hoped to be rich by now, perhaps the process would have been more frustrating. Thankfully I understood at the beginning of my journey that I was in it for the long-haul. Since I made my first investment I learned how to think about asset allocation and diversification, how to find and read minimum disclosure documents (MDDs) and how to find and make sense of constituent details and ETF methodology. I also figured out the link between currency movements and offshore ETFs. A boring market enabled me to engage with ETFs in a way that’s quite removed from my financial situation.

If you can resist the temptation to chase returns where there are no returns to be had, you are in a great position for meaningful engagement with ETFs. Get stuck in. It’ll stand you in good stead once things start moving again.

Developing a robust investment strategy

With my investments doing nothing for a few years, I’ve been forced to revisit my investment strategy. The whole point is making money. When that’s not happening I have to test my assumptions. Some of the questions I’ve grappled with include:

What would have happened if I remained in cash?
What about bonds?
How would different investments have affected my tax situation?
What do I think about my ability to choose individual shares that might outperform the market?
How do I think about Bitcoin and blueberries?
Do I understand how different asset classes behave in different circumstances?

I keep coming back to these questions and others like them. I keep coming to the conclusion that a well-diversified ETF portfolio is a strategy that makes me comfortable. Will it make me as rich as I can possibly be? Probably not. Someone out there is going to have a killer combo of asset classes and individual shares with a soupçon of crazy investments that will fare much better than my little portfolio. I’m okay with that. What matters is that I understand my own strategy and my ability to make decisions that are in line with my personal investment philosophy.

Use this time to iron out the kinks in your thinking. When things move, they move quickly. You want to be ready.