Investing in long term index funds is letting go of Ego

One element and important lesson for people similar to me that I’ve thought about with the Boglehead philosophy of investing is that it challenges my Ego. If I become financially well off some day, it would be cool if I did it by investing in more specific stocks, trading stocks, timing the market, etc so that I could demonstrate to others how I am “smart” and financially skilled. That way I can further point to the fact that I made smart choices and worked hard to for my wealth someday, and it wasn’t just something that came relatively easy.

Becoming well off via Boglehead approach with index funds doesn’t quite hit the same. You are investing with a simple approach, such as the three fund approach. If your young like me, you might just be using 2 funds- a US fund and an international fund. Its so simple, and does appear in a way to be easy. It doesn’t take an investing genius to succeed with this approach. Literally anyone can use this approach can succeed. Someone with almost zero knowledge and someone with more in depth knowledge on finance, stocks, bonds, mutual funds, etc will have the same success if they both invested in the same broad index fund at the same time and simply held long term, rather than trading financial instruments and timing the market.

Perhaps the way I would view the Boglehead approach is that its not about being smart, but being wise. Investing in the Boglehead approach is wise for various reasons that you are all aware of. It is a safe, proven long term investing strategy as opposed to trading single stocks and other investments which carry far more risk, and often not resulting in more success as a simple broad index fund for professional investors let alone retail investors.

I’m sure one could make the argument that investing in the Boglehead approach also shows that you are smart, however, the point is that something that I’ve felt the need to do is let go of the notion of being viewed as “smart” by making complex, advanced investments that require deep and seasoned knowledge that made me wealthy. I accept that what will lead to my success is simple, and anyone with basic knowledge of investing can achieve the same success if they choose to. Its not sexy. Well, not *that* sexy. When I talk to friends about it over the weeks, months, years, I won’t have some new interesting trade I’m working on to share. It’ll be the same, “boring” approach every time we talk about it - “well, I just continue to buy more index funds”.

This does require me letting go of my ego, which might want more recognition for the hundreds of hours that I’ve spent studying finance and investing. Part of me still thinks it would be cool to make some big trades with some of my investments as a partial-Boglehead, and achieve a great return on them so that when people ask how I made some large sum of money I can tell them I made an awesome, well timed trade. I realized this was wrong, I’m not investing to stroke my ego and appear a certain way to others, I’m investing simply to fund my desired future for myself and my family.

I recognized letting go of my ego will be important for several reasons, one is that if I don’t, and I keep trying to make trades, that this could lead to my underperformance vs. the market, or even worse- the riskier these trades become. This is a big point discussed in the Boglehead community- that people, especially retail investors, shouldn’t think they are such skilled investors that they will succeed in trading stocks.

Another reason that I think its important to let go of ego is that it chooses to believe that success an investing can be for everyone, for the common person, and not just some elite group of professional, intelligent, and skilled investors. This is an important reason that I appreciate the Boglehead approach, because it can work for everyone regardless of their knowledge, skills, intelligence level. If I do succeed, I would like it to be in something that genuinely works, and reproducible by others, not just something I got somewhat lucky in that others couldn’t easily replicate. I like that I can recommend the boglehead approach to my friends and family and have genuine trust it will turn out well for them long term. I couldn’t say the same if I were recommending them stock picks.

Happy to share that over the past few years I’ve reallocated most of my portfolio to broad index funds, and my goal will be to achieve 100% index funds someday with 0 individual stocks. There are other reasons to do this of course- peace of mind of not worrying about individual stocks in my portfolio being a big one to me. I did want to emphasis the ego because I think it’s an intriguing, underlying motive that I’ve certainly dealt with, and I’m curious how others who have dealt with this might describe this phenomenon.

What are your thoughts? Do you see ego playing a big role in investing strategy or more of a minor one compared to others?