Put your money to work without losing sleep over the next stock market crash with these stress-free investing strategies
Turn on CNBC or any other financial news channel and you’re likely to hear 60 investing strategies and stock picks in any given hour. That number doubles on investing websites.
Portfolio managers, analysts and pundits spin these stories to an ever-hungry mass of investors just trying to eke out another percent on their investments.
The end result of this constant barrage of investing ideas?
The investors get ulcers and the portfolio managers get rich off trading fees.
Investing strategies are like the financial equivalent of crack cocaine. Do you blame the portfolio managers for the endless supply or investors for the constant demand even against overwhelming evidence that no one can ‘beat the market’?
One of the core principles I set out to hold when I started this blog was to help people simplify their investments – to find investing strategies that would make their money work for them and let them get back to what’s important in life.
That means building stress-free investing strategies that work so you don’t have to!
To do that, I reached out to 11 professional investors and financial bloggers to get their input on favorite, stress-free investing ideas. What I got was a great list of ways to invest your money with little or no analysis required but that would produce a stable source of return.
Stress-Free Investing and Instant Diversification with ETFs
We start with easily the most popular stress-free investment strategy, using exchange traded funds (ETFs) for instant diversification.
ETFs are like mutual funds, a group of stocks picked by a portfolio manager, but trade like any other stock. That means you can buy them cheaply on any online investing site and fees can be as low as a tenth of a percent for some.
ETF investing offers several advantages over mutual funds in cost and taxes. Also, many ETFs invest to track an index like the S&P 500 or a sector of the economy. This means there is very little the portfolio manager must do for stock selection, cutting costs to almost nothing and giving you market-returns.
To paraphrase the saying, “If you can’t beat the market, join it.”
Tom of the Canadian Finance Blog shares how he gets a balanced portfolio investing in ETFs and how you can make investing completely hands-off.
My favourite stress-free investing strategy is to invest in a balanced portfolio of Exchange Traded Funds. With just a handful of ETFs, you can invest in the entire market and keep fees much lower than actively managed mutual funds.
You simply rebalance your portfolio every quarter or year, forcing you to buy low and sell high. If you want to be even more hands off, look into robo-advisors, which handle the portfolio strategy and rebalancing for you.
That rebalancing can be done across asset classes, i.e. selling stocks and buying bonds when the market heats up, or can be buying and selling your ETFs to reposition your risk. The idea is that keeping the amount of money in each fund or asset along a set target means you’ll be buying low and selling high each year.
Daniel from Urban Departures takes the simplification a step farther and argues you need just three funds to diversify your portfolio.
Investing doesn’t need to be complicated and time consuming. Take an approach a seven-year old can understand, takes 15 minutes to manage per year and can outperform 90% of finance professionals in the long run.
As little as three low-cost index funds or ETFs covering Canada, US, and international stock markets can build a diversified portfolio and provide financial security in your golden years. Avoid the trap of stock picking; simplify your investing and get back to the things you care about.
If you wanted to take the number of funds as low as possible, you could just invest just two funds:
- Vanguard Total World Stock ETF (VT) which holds nearly 7,800 stocks in U.S., developed and emerging markets for your stock exposure
- iShares Core US Aggregate Bond ETF (AGG) which holds government, mortgage-backed, agency and other bond investments with an investment-grade rating.
The idea is to get very broad exposure to stocks and bonds in a single fund with a low management expense ratio.
Millennial Revolution brings up a great point about ETF investing in that you never have to worry about a fund losing all its value as might happen with an individual stock.
The stress-free investing strategy I use is the same one advocated by none other than Warren Buffet, Index Investing. Using low-cost ETFs that track the entire stock market rather than picking individual stocks, you can build a portfolio that will never go to zero.
In fact, when all my friends and family members were trying to get me to buy an overpriced house, I instead went in this direction and as a result amassed a $1M portfolio and retired from my 9-to-5 at the age of 31.
An Investment with a Guaranteed Positive Return
I use the ETF index investing strategy for a large portion of my own portfolio. I devote 60% to 70% of my investments to ETFs that cover broad themes and sectors in a strategy called core-satellite investing.
But I also like to get a little extra on my investments and there’s no better way that to get paid cash while you hold an investment.
I’m talking about dividends.
Not only do dividend-paying stocks put money in your pocket constantly but they’ve also repeatedly outperformed the rest of the market.
A study by Ned Davis Research found that companies regularly increasing their payouts easily outperformed the rest of the market over nearly four decades. Even dividend stocks that did not regularly increase payouts did better than non-dividend stocks.
There are several reasons to invest in dividend stocks. Least of which is that constant cash flow makes for a great way to stay calm when the rest of the market crashes.
Think of it this way. That quarterly cash payment is a 100% guaranteed positive return. Even when stock prices tumble, you will always collect cash on your dividend stocks.
Hank of Money Q&A shows how he uses reinvestment programs to get more of his favorite stocks when he doesn’t need the cash flow.
My favorite stress-free investing strategy is to invest in dividend reinvestment plans (DRIPs). DRIPs allow you to purchase shares of stock, often at a discount, directly from the company or their transfer agent and skip the brokerage commissions. It’s a great way to purchase shares in dividend paying companies. And, DRIPs also allow you to dollar cost average your investments and take advantage of stock price fluctuations.
George of DRiPInvesting.org argues there is no truly ‘stress-free’ investment strategy but that you can minimize the risk with a DRIP plan.
The fear most often heard is that the company’s dividend may be cut or discontinued, and while that is a reasonable concern, looking into the past can be helpful. Dividend Champions are companies that have increased their dividend every year for at least the past twenty-five years. This means that they did so after the problems in 2000 and 2008, so they can offer a great starting point.
Ben at Sure Dividend offers another dividend investing theme in the Dividend Aristocrats group of companies.
Not all businesses are created equally. Some businesses have strong and durable competitive advantages that allow them to both distribute earnings to shareholders in the form of dividends, and to raise those dividend payments year after year.
My favorite stress-free investing style is to invest in these businesses with long histories of success as quantified by their dividend history when they are trading at a discount to fair value, and hold them for the long run to minimize frictional costs. One of the best places to find such businesses is the Dividend Aristocrats Index – an exclusive group of 51 S&P 500 stocks with 25+ years of consecutive dividend increases.
The main difference between the Dividend Aristocrats and the group of Dividend Champions is that a company must be in the S&P 500 index to be in the Aristocrats group.
There are other dividend investing themes like high-yielding stocks, REITs, and a new breed of tech dividend-payers. Any way you slice it, they provide the consistency of regular cash flows that can help you sleep at night when the market tumbles.
Stress-Free Investing in Real Estate
I’ve been investing in real estate for nearly two decades, first in single-family rentals and later in commercial properties and real estate investment trusts (REITs). I love the pride of ownership you get from real estate and the returns can be fantastic.
…it’s hard to make the case for real estate as a stress-free investment though.
Managing your own rental properties means constantly having to deal with tenants, contractors and city inspectors. Eventually, you may be able to hire out property management to make it more of a passive investment.
I wanted to get a second opinion on how to make real estate a hassle-free investment so I reached out to three of the most well-known RE investors on the web.
Brandon at Bigger Pockets has his money in just about every type of real estate investment so I knew he would have an answer.
The most stress-free investment I’ve made is private lending on a real estate deal. A friend came to me with a real estate deal he wanted to put together, but needed capital to fund the deal.
I funded the property ($80,000) for an 18-month loan and every month I get a check in the mail, with virtually no stress or worry. Furthermore, I know the property is worth almost $200,000 so I have no fear of not getting paid back because, worst case, I could always foreclose on the property, take ownership, and sell it for much more than I have lent. In other words, there are no major ways I can lose. I’d call that pretty stress-free!
I like the idea of just being ‘the money’ on real estate deals. Make sure you get a rock-solid contract and do your homework to make sure the property value supports the investment.
Nate from InvestmentZen offered another strategy for real estate investing and explained how to make it stress-free.
My favorite stress-free investment strategy is investing in turnkey, single family homes that offer high rental yields. Having a healthy cash-on-cash return provides a buffer against market downturns and unexpected expenses. It also allows you to invest in professional property management.
The key to making this investment stress-free is to really know your numbers and take the time to interview and vet the team that will be managing your properties. If your rentals are managed poorly or if you don’t have the cashflow to cover unexpected costs, it can turn your stress-free investment into a major investment headache.
Finally, Seth at Retipster recommended a type of real estate investing that few ever think about but could ultimately be the most stress-free of them all.
Without question – the most effective, stress-free investment strategy I know about is buying and selling vacant land. For a lot of reasons, land investing is an incredible (and largely overlooked) opportunity that allows me to buy properties at FAR below market value.
The great thing about vacant land is that ultimately – it’s just dirt. This means I don’t have to do any maintenance, make any improvements, deal with tenants or fight with contractors.
Even if you aren’t quite ready for direct investment in real estate, it’s important to hold some exposure in your portfolio. Not worrying about your investments means being diversified across different asset classes like stocks, bonds and real estate.
If you aren’t investing directly in properties, that means buying shares of a few REITs for exposure to the property market. These are investment companies that hold commercial property and pay out nearly all their cash flows as dividends to investors. It’s a great way to get immediate diversification in property type and location without a million-dollar portfolio of your own properties.
A Favorite Stress-Free Investing Process
That’s three great investments for a stress-free portfolio but how do you actually put that portfolio together? Is there a way to invest that will take all the market timing and guesswork out of putting your money to work?
David of The Astute Advisor shared his strategy for regular contributions and even how much to increase your contributions each year.
The most stress-free investing strategy is also the most boring. Take a set dollar amount and invest it monthly into an S&P 500 index fund or ETF. Increase that contribution by 8% each year and do that for 20 years.
Assuming a very conservative 4% return, you’ll end up with more than double compared to leaving the contribution amount the same year after year.
Increasing your contributions 8% every year might be tricky for some. I’ve heard of increasing your investment contributions by your annual wage increase or by the portion over inflation. Increasing contributions 8% every year will also mean cutting back on spending but can be an achievable goal over a few years, especially for people that are late to the investing game.
Jacob at ValueWalk explains something about analysts that most people don’t know, that most aren’t allowed to invest in the stocks they cover.
I no longer invest in equities to ensure there is no conflict of interest – this works best for my stress-free investing than when i was investing in individual equities – all my money is allocated to broad based index funds and ETFs which tend to be less volatile than the market and it helps me sit back and relax.
I setup automatic investments so I am buying on dips and do not have to worry about what the ECB will say or what a CEO will say on an earnings call. The key factor here is less volatility and checking my returns infrequently as a way to perform with the market and not stress out over declines.
I’ve been regularly prohibited from trading certain stocks while covering them for employers when I worked as an equity analyst. It’s ironic but the very people pitching complicated trading strategies are the ones with the simplest of investments themselves. That’s not a burn on equity analysts or that trading strategies don’t serve a purpose for some investors, but that you don’t need to pick stocks to make money.
The fact is, investing can be easy and even stress-free if you don’t over-complicate it with trying to beat the market. Focus on beating your own investing goals, determined through a personal investment plan. Invest across several different assets and in different investments within each asset. Make sure you invest regularly and you’ll win the slow-and-steady race to your financial goals!