It’s natural to feel like being a good investor means coming up with a complicated strategy that maximizes returns, Morgan Housel, author of “The Psychology of Money,” said on a recent episode of The Burnouts podcast. But that perspective is likely holding you back from long-term financial gains, he said.
“A lot of people in investing, particularly smart people ... high IQ, high educated people, are like, ‘Let’s try to make this as complicated as we possibly can,’ and they do,” Housel said. But when it comes to investing, “the more complicated you make it, the worse you’re probably going to do.”
Instead of chasing hot stocks or trying to time the market, the smartest approach to investing is making it as “brainless and simple and boring as you can,” Housel said.
“If you can be an average investor for an above-average period of time, like just earn average market returns every year for the next 20 years, you’ll do amazing,” Housel said. “The simple people who can be simple and average for 50 years are the ones who end up doing the best.”
One of the best tools for this approach is a low-cost index fund, which tracks a market index like the S&P 500 and aims to replicate its performance. This strategy, often referred to as passive investing, is commonly recommended by financial experts.
