The process is simple and goes like this: I first invest in an S&P 500 Index Fund. Then, I chill. Simple, no?
It is because of the following reasons that I “index-and-chill”. The reason I “index and chill” is as follows.
For those who are curious, I started out with $6,000
After this rollercoaster ride, I came to six conclusions:
- It is unlikely that the circumstances in which I was able to make so much money so fast will ever again exist.
- It was unlikely that I would find another way to make money quickly.
- It was likely that I would spend the remainder of this money trying to find another way to make money quickly.
- In a little more than a year, I had still made a profit of 2,000% on my initial investment.
- I had enough money to day trade a Roth IRA with my Tax-Free. Peak degeneracy account would be worth millions after 40 years.
- What if I spent the time I would have spent trading on something else that I… don’t you know… actually enjoyed?
On August 17, 2021, I invested all my money in an index fund. It was the best decision I ever made in terms of finances. No, diversification did not guarantee me outsized profits. It was quite the opposite. My portfolio was guaranteed to have market returns that historically averaged 9% indefinitely.
This decision was not made to maximize my returns. This decision was made in order to relieve myself of a financial burden. It was made to offload a financial responsibility.
You could say that I gave up control in favor of optionality. Optionality is an odd thing. In a moment, we’ll talk about that.
Last month I was scrolling down Twitter ( , as I do), when I saw this Will Manidis Tweet. It made me pause and reflect.
The most alarming trend is that people treat life as if it were an index fund.
Never take big risks. Don’t build a family. Don’t build a holding business that other people run. Don’t make any decisions. Preserve your flexibility.
Will Manidis
Jan 5, 2023
“The most disturbing trend is that people treat life as if it were an index fund.
It’s funny how he described the way so many people live by using ” Index Fund“.
Index funds, as I said a moment ago, are a good option for your finances, because they save you the time and effort of managing an actively managed portfolio. You can spend more time on other things in your life, instead of worrying about investing. By indexing your wealth, you can choose to do other things.
When we extend this quest for optionality from our portfolios into our lives and our ambitions, it can cause problems.
Mihir Desai teaches at Harvard Business School and Harvard Law School. He is in touch with more young people who are high achievers than anyone else. Dr. Desai published The Problem with Optionality five years ago in the Crimson.
To quote Dr. Desai’s piece:
This focus on creating options can have unexpected consequences. Acquiring options is not about empowering young people to make decisions and take risks, but rather it becomes a habit. There is never enough value in options. And the more you acquire, the harder it becomes to stop.
After graduating, the Yale student goes to Goldman Sachs, and then leaves after several more years to go to Blackstone. There are many options!
The individual is merely accumulating stamps of approval, and safety net after safety net. These safety nets don’t end up enabling big risk-taking–individuals just become habitual acquirers of safety nets. It’s hard to let go of the comfort that comes with a well-paying position at a prestigious company surrounded by intelligent people. The dreams that these options were supposed to allow slowly fade into the background. Some people find that these destinations make their dreams come true. But for every one, there are 10 entrepreneurs, artists and restaurateurs who get stuck in these institutions.
We tend to put optionality at the top of our list during our formative years, without really thinking about why we would want it.
You’ll do anything to get a prestigious internship, which will help you land a high-paying job doing something you dislike. Then, you’ll differentiate your graduate school applications for top MBA/Law/whatever programs, where you’ll go through the ringer to land a more prestigious job, in order to pivot into something else that you enjoy.
CAN YOU SEE WHAT I’M DOING?
Everything is a stepping-stone for what comes next. Like the donkey who chases the carrot on the stick, we tell ourselves we are only a few steps away from reaching our dreams.
Optionality just for the sake or optionality. When you think about it, it’s a sick and twisted game, because there is always another option. There’s always another option.
Ironically, pursuing unlimited optionality will eventually work against you. You’ll find that your options are actually limited as time passes. Therein lies the key difference between pursuing options in your financial life and your personal life.
Indexing your portfolio will ensure that it appreciates in value over time. Time is on your side in this case.
Your life has an expiration, but unlike money, some opportunities never come again. After 40 years, you may realize that you have never taken a job you really liked. You wasted valuable time on resume-filling activities that you could have spent exploring your passions. You may have wanted to start a business, ask out a girl, go on a trip, develop specialized skills, or do anything else, but ” it was never the right time?“. Sorry, these opportunities are gone.
The value of an option is determined by the commitment it allows. If you don’t commit to or , then that option dies along with you. It is worthless and cannot be redeemed.
It’s the same thing I saw in college and it’s the same thing I see in business school. I think the curse for young people in 2023 is that they are so driven to win the “game” that they don’t bother to consider whether “the game”, in the first instance, is even worth playing.
Do not misunderstand me, I believe that patience is a virtue and that delayed gratification can be a competitive edge. The idea that each stage of life is just a stepping-stone to a “next phase” which will always be present, is destined for failure.
It takes time to create anything meaningful. Building a business from scratch takes time. So does raising a family or learning a difficult skill. Optionality is like hitting the food samples in the mall food court. You can quickly get a taste of everything, but you’ll only be able to experience the surface. You will have to decide when you are ready and jump in.
Index funds can be a wonderful thing, because they give you the freedom to achieve your goals. What’s the use if you make your entire life an index fund?
