Investing is like a round of golf

For the last 130 years there has been one strategy that has consistently made people very rich from the stock market. Today, I’m going to show you what that strategy is, why I follow it and how to do it.

The strategy? Track the market using low-cost tracker funds or ETFs.

You’ve probably heard this before. You may even be disappointed that I’m not revealing some secret, new, get rich quick scheme. But let me tell you why you should listen to it.

Investing is like a round of golf.

Don’t close this email. Hear me out.

If you know even a little bit about golf, you will know there is a ‘par score’ for every golf course in the world. Some people may think that ‘par’ is the average. It is not. If you can shoot a level par round of golf consistently, you will beat 99.5% of all golfers who play the game.

Unless Make Money Work is being shared around the PGA locker room and Rory is reading this, then you, the reader, probably aren’t naïve enough to believe that you could complete a round of golf under par once, let alone consistently. And I can guarantee that you wouldn’t bet your life savings on it.

This is exactly how you should think of investing. To believe you can beat the market (level par) is totally misguided. Yes, perhaps 0.05% of the population have spent 10’s of thousands of hours studying investment theory, psychology, and pitch decks. And much like professional golfers, they can beat the market consistently. But if you are reading this, you probably aren’t one of them.

This is where the analogy with golf ends.

Currently, there is no magic golf club or technology that allows you to skip the 10,000 hours of practice and consistently shoot level par.

When investing, there is.

Thanks to human ingenuity, you can make one simple, cheap transaction and own a little bit of every company in your chosen market. You then guarantee that you will shoot level par every year.

A fun fact. If you shot level par in each of the four major tournaments in 2023, you would have earned $883k. It’s not the millions that the winner makes but it is a very envious wage.

OK, I promise that is the last time I will mention golf.

Why do so many people fail?

The strategy is simple, but it’s hard to follow.

It’s in our nature to overestimate our ability, so we try to pick ‘winners’. The sooner you accept you won’t beat the market, the more money you will make.

For a dose of motivation, let me talk you through an example.

• The S&P500 has grown at an average 10.8% every year since 1900.

• If you invested your £20k ISA limit every year for 10 years in the S&P500.

• Then left it there for another 20 years.

• You would now have £2.8m

To labour the point. For a £200k investment, you would have been ‘given’ £2.6m!

Most people fail because they don’t realise the power of compounding growth. £2,000 profit on a £20k investment in your first year isn’t very glamorous. But, £2.6m from £200k is sensational no matter how you look at it.

Open a trading account.

Hopefully you’re now convinced. Tracking the market has delivered exceptional returns for over 100 years. 

The first step to track the market is to open a trading account.

My preferred platform in the UK is called Freetrade. It’s the cheapest. It costs £60 a year and trading on the platform is free.

If you open a Freetrade account using this link, we’ll both receive a free share worth up to £100.

Use an ISA

If you are a UK resident, invest your first £20k every year in a Stocks and Shares ISA for tax-free profit.

For any investment above the £20k yearly limit, use a General Investment Account.

Which fund or ETF is best?

I can’t advise you exactly what to invest in because everyone’s situation is different.

But, you want to look for a low-cost ETF or fund that tracks your chosen market.

As an example, I split my portfolio between the following ETFs on Freetrade:

• The Vanguard S&P500 ETF (Code: £VUAG)

  • This ETF tracks the S&P 500 index which includes 500 of the biggest American companies.

  • It has an ongoing charge of 0.07% of your total holding each year.

• The Vanguard FTSE All World ETF (Code: £VWRP)

  • This ETF tracks over 3,000 large and medium sized companies from around the world.

  • It has an ongoing charge of 0.22%.

Why do I choose these ETFs?

I have always favoured America. Over the last 100 years, America has led the way in innovation and economic growth. Over 50% of the world’s shares by market cap are American and the S&P500 has consistently outperformed.

Warren Buffett once said: “In its brief 232 years of existence ... there has been no incubator for unleashing human potential like America … Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”

When it comes to investing, I’m very happy to follow Mr Buffett’s advice.

In recent years however, I’ve been adding to my FTSE All World holding. None of us can know the future. There are no guarantees that America will continue to lead the way. 

But I can confidently say that humans will continue to progress. Capitalism incentivises innovation. In turn, our economies grow. By investing in the FTSE All-World Index, my portfolio will contain the stocks that will drive this growth irrespective of which country they are from.

In the very unlikely situation that humans fail to progress, society will be vastly different. It’s likely money will have lost its meaning. £100k under your bed will be just as useless as £100k in a trading account.

It isn’t easy.

I do understand. Following this strategy isn’t easy.

People prey on fear, suggesting you must pay a financial advisor or risk losing millions when investing.

Or they use your desire for short term gains against you. They tell you this crypto coin or meme stock is about to explode.

You hear stories of massive wins, but you never hear about the huge losses.

Your ego will get in the way and convince you that you know something nobody else does.

Instead of fighting this, I allow myself to pick a few shares with up to 10% of my portfolio. You may consider doing the same if it allows you to stay disciplined with the other 90%. 

Every year that goes by though, I add more to my low-cost ETFs and hold fewer individual stocks. It is the disciplined investing that has doubled my portfolio roughly every 5 years.

Of course, none of this constitutes financial advice.

But I hope that you too can make your money work for you and through the remarkable power of compounding growth, make your future self very happy.

A few additional notes

• ETFs vs Index funds can be confusing. Ultimately you will achieve the same outcome from both but an ETF is often more prevalent and easier to trade. For a more in-depth comparison please see here.

• Past performance is no guarantee of future results.

• This Content is for informational purposes only, you should not construe any such information as investment, financial, or other advice.