Reasons for Individual Investors to Be Grateful

In his TED Talk, David Steindl-Rast makes the case for happiness being directly tied to gratitude. The monk and interfaith scholar says people who are more grateful tend to also be happier people. I’m referring to it not only because it is a great talk (to be fair, I’m a fan of TED Talks in general), but because today is Thanksgiving. (Happy Thanksgiving!) Today is supposed to be a day for being thankful. With this in mind, I’m going to list things we individual investors should be grateful for but may overlook. It’s intended to be an evolving list, with changes potentially made to it on future Thanksgivings.

Having a Portfolio—If you’re worried about valuations, monetary policy, economic growth, the impact Washington politics will have on economic growth, a return of downside volatility or anything else potentially affecting the value of your portfolio in an adverse manner, be grateful. I realize this seems counterintuitive, but consider the bigger picture: You have wealth to worry about. No matter how large or small your portfolio is, it’s money you do not have to spend today. Not everyone has this luxury.

Never Having to Report Performance—An advantage that we individual investors have over professional money managers is never having to report our performance. I cannot stress enough how big of an advantage this is. It gives us the ability to stick to strategies proven to work over the long term—even when they are out of favor on a short-term basis—without ever having to worry about keeping clients happy.

Being Able to Invest in All Exchange-Listed Stocks—In addition to not having to report performance, we individual investors are not restricted in what we can invest in. This gives us the ability to invest in stocks whose market capitalizations are too small for institutional investors to even consider because of investment objectives and/or the sheer amount of money they have to invest. The flexibility also allows us to take full advantage of the size, value and momentum premiums (and other return anomalies) identified by academic research. Our ability to invest in smaller companies is a big advantage.

Decreasing Costs—It’s never been cheaper to invest. Commissions have dropped with the major discount brokers now charging between $4.95 and $6.95 to trade stocks, exchange-traded funds (ETFs) and closed-end funds. Many mutual funds and ETFs can also be bought and sold on a commission-free basis. (Check with your broker for terms and the list of eligible funds.) Fund fees are declining, being driven by a price war in the ETF industry and the growing popularity of index funds. All of this means more money in your portfolio.

Compounding—There is no greater friend to investors than compounding. As many of you know, compounding takes a dollar’s worth of assets today and turns it into far more than a dollar’s worth of assets tomorrow. This is why lower costs are beneficial: Every dollar you save is a dollar you get to keep investing. Compounding grows your portfolio and then takes the increased value and grows it even more.

The Bull Market—Speaking of compounding, the current bull market is nearing nine years in length. Though it started with depressed values for stocks, the major indexes have realized significant gains since then. Those of us who have maintained a constant allocation to stocks throughout the bull market have profited handsomely. Thanks Mr. Market!