I’m addicted to stocks. They’re shiny objects to me, and I want to own them all. I’m not impressed with cars or material things, but show me a portfolio of stocks, and I get excited.
I run several stock screens daily, looking for the next market mover, hoping to find a company that can rise 10x or more. I search for large, mid, and small size companies. Some screens filter for earnings, others for dividends. My anxiety surges because I want to buy them all, and I know I can’t; it’s mathematically impossible.
When I started my investment and financial planning firm, I made the gut-wrenching decision to sell my stock holdings in my IRA. I said goodbye to Apple, Home Depot, Microsoft, Pepsi, McDonald’s, and dozens more. It was a tough call, but I had to do it; it was a humbling experience, but I needed to check my ego at the door.
However, I kept my historical allocation of 75% stocks and 25% bonds after buying a basket of mutual funds managed by Dimensional and Vanguard. My passive approach gives me exposure to tens of thousands of companies. I no longer fret about missing the next great company because I probably own it in one of my funds.
When I owned individual stocks, I checked my IRA balance constantly, trying to absorb every tick. Now that I invest in mutual funds, I go days or weeks without looking at my balance. My IRA is in capable hands, so I don’t feel the urge to micromanage the investments. And my anxiety level has dropped.
My IRA rebalances a few times per year if the allocation gets too aggressive or too conservative, so my turnover is low, and I will keep my 75% allocation to stocks for the foreseeable future. Since I converted to a passive investment model, my average annual return for my IRA has been 11.9%.
Another reason to go passive is that most active fund managers and stock pickers fail to outperform their benchmark. According to Morningstar’s SPIVA study, more than 80% of large-cap mutual fund managers underperform the S&P 500.
It was hard to surrender my stock-picking model, but I did it, and so can you. My passive IRA gives me global stock exposure, reduces my stress, frees up my time, and generates decent returns – not too shabby.
Humble yourselves before the Lord, and he will exalt you. ~ James 4:10
May 6, 2021
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
 Last five years, ending May 6, 2021.
 https://www.evidenceinvestor.com/morningstar-active-passive-barometer/, Robin Powell, April 1, 2021