Vincent’s Blog: Happiness, Anxiety and Passive Investing

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I just woke up in the middle of the night. I am sweating and I feel lightheaded. My mind is going in circles and racing faster and faster. I cannot stop it nor slow it down. I am loosing my mind and it is the last thing I need. I have too much to do, too many responsibilities. Bills, work, family, friends, performance, failure, longevity, inflation… Wow! I am having a panic attack.

The panic comes and goes quickly but its unsettling feeling stays for a while. I wonder: what is going on with me? Stress and anxiety are both ingredients of a normal life, just like happiness and being relaxed are as well, right? But, how can I control these feelings better? I should stop comparing. Maybe that would help? You see, we love comparing and it gives us cause to feel happy or stressed, anxious or relaxed. We do it with our friends, family, colleagues, neighbors and even people we do not know! We do it with prices, material possessions and even our health. Without comparison, it seems, life is dull and hard to evaluate.

However, we have a big flaw: we compare quickly and in a very superficial way. Every day, we engage in comparing ourselves, either with people or things around us. We don’t focus on the absolute, nor the details and can hardly relate to what we cannot see or don’t experience. It seems we cannot make sense of our lives without having a benchmark. Think of two people, each owning a million dollars. One is happy; the other is anxious. They each have a million and belong to the happy few, right? Yes, but the first just made a million and started from zero, while the latter had two million and lost one.

Benchmarks are also popular with investing. We use them to assess our performance. However, choosing the right benchmark is important, because it significantly influences our happiness or anxiety. If we always compare our performance with the latest top performing strategy, we are bound to be unhappy and anxious. Pick the inflation rate or your savings account’s interest rate as your benchmark and you will have a far better chance of feeling happy and relaxed.

We hear and read a lot about “passive” investing, like buying the S&P500 index. However, do you know you cannot buy the S&P500 index, but only a close copy? Do you know those copies underperform regularly? Do you know the S&P500 is an actively managed index? Do you know it is a free-float weighted index and therefore favors big companies? Do you know that when you buy an index ETF or index fund, its managers actively buy the shares in the market? Do you know that by buying “passive” index funds or index ETFs you indirectly buy the same companies again and again! Do you know that most mutual funds are benchmarked against the S&P500 and most will buy more or less the same companies as well? Do you know there is nothing passive about “passive” investing?

Don’t take my word for it, do some reading and you might conclude the following: 1) you should second guess following the crowd into “passive” index investing, which in itself could be feeding a bubble 2) you should compare more than fees alone, details matter; 3) you should change your benchmark to the inflation rate, which ultimately makes the most sense when paired with your objectives of capital preservation and wealth building over time. So, in order to avoid panic attacks, let’s try to compare less and change our benchmarks. It will make us a lot happier and much more relaxed.

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