Just 'buying the index' is often derided as the 'easy way out' or investing for those who don't like to invest. After all, if you compare the ease of just buying a plain-Jane index fund instead of doing the research, finding ASX shares that you think are winners and buying at the right price, it indeed seems like the easy way out.
Normally, the goal of any 'active' investor is to outperform the broader market – the return you can get from just buying an index fund like the Vanguard Australian Shares Index ETF (ASX: VAS). If you can get a market return so easily, you might as well aim higher if you're actually interested in investing, after all.
But according to reporting in the Australian Financial Review (AFR), the lazier you are as an investor, the more likely you are to get a better investment return.
According to the AFR report, the period of immense market volatility we saw over February and March saw a massive increase in retail investors buying and selling ASX shares – double that of the preceding 6 months.
Volatility breeds risky behaviour
The AFR quotes a study from ASIC (the Australian Securities and Investment Commission), which found that, during this period, more than half the days on which retail investors were net sellers, they watched the stock prices of investments rise the following day.
Yet if an index investor just ignored the markets during this time, they would have been up close to 20% from the lows we saw in March – without any brokerage fees, transaction costs or taxes that come from dipping in and out of shares to worry about.
This type of behaviour has been proven to bring wealth destruction time and time again. It's the reason why Warren Buffett always says things like "if you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes".
I'll add another quote from Buffett's right-hand man Charlie Munger, who once said: "I succeeded because I have a long attention span."
Do you really think these 2 investing legends would be darting in and out of shares during a bear market? No! They both have made a habit of making big purchases of shares during times of volatility and then sitting on their buys for years and decades afterwards.
It's something of a lazy approach, but as we've seen – the lazy investors usually end up on top. So even if you just 'buy the index', your chances of high returns are far greater than someone who thinks they can time the market!
