<< Chapter 3
When thinking about where to invest, most people utilize the five major asset classes: cash, bonds, gold, real estate, and stocks. Each serves a purpose, but their long-term performance has varied widely. As risk increases, one should expect higher rates of return. Cash and cash equivalents, such as savings accounts, certificates of deposit, and Treasury bills, offer unmatched safety and liquidity. They are useful for emergencies or short-term needs, but over the long run they barely keep pace with inflation. Investors who hold cash for decades discover that while their nominal balance may stay secure, their purchasing power steadily erodes.
Bonds provide a more attractive alternative. Government and corporate debt instruments pay steady interest and are less volatile than stocks, making them appealing to conservative investors but are vulnerable to inflation. History shows that long-term government bonds have returned about one to three percent above inflation, far less than stocks. During inflationary periods such as the 1970s and the early 2020s, bondholders saw the real value of their wealth significantly diminished.
Gold and other precious metals are often viewed as safe havens in turbulent times. They carry no default risk and have served as a store of value for centuries. However, gold generates no income and is driven largely by speculation and sentiment. Over the long run, gold’s real return has hovered around zero, offering protection against currency crises but little in the way of wealth building.
Real estate offers both tangible value and income potential. Rental properties can generate steady cash flow, and real estate has certain tax advantages. However, it is illiquid, requires ongoing maintenance, and its returns are tied to local economic conditions. Historically, residential real estate has delivered only one to two percent returns after inflation, far below what stocks have produced.
Stocks, by contrast, stand apart. When investors buy equities, they are purchasing ownership in companies that includes claims on earnings, dividends, and ultimately on the growth of the economy itself. Over nearly two centuries of U.S. history, stocks have produced real annual returns of six to seven percent, more than double the long-term performance of bonds and vastly exceeding gold, real estate, or cash.
The superiority of stocks comes from several factors. First, they provide a natural hedge against inflation. As prices rise, companies adjust their own prices, revenues, and profits, and those gains accrue to shareholders. Second, reinvested dividends compound steadily, creating exponential growth in wealth over time. While stocks are volatile in the short run, their risk diminishes with time. Over a one-year period, stocks may fluctuate wildly, but over 20 to 30 years, the likelihood of a negative real return approaches zero. Bonds and cash, on the other hand, can still lose purchasing power even over very long time horizons.
In essence, stocks are not just another asset class; they are a participation in human ingenuity, productivity, and economic progress. Every innovation, every new business, every advance in technology or medicine eventually contributes to corporate earnings and shareholder returns. That is why, despite recessions, bear markets, and crises, the long arc of history demonstrates one clear truth, for long-term investors, stocks are the most powerful vehicle for building and preserving wealth.
Before we begin to talk about investing in stocks, let’s quickly define what it is. When a company needs to borrow money to operate or expand their business, it can go to a bank and borrow money utilizing their assets or credit history as a promise to pay the money back. Alternatively, a company can issue an IOU to the public as a corporate bond and promise to pay back the original amount plus interest to incentivize the creditors. Third, the company can issue fractional ownership of the company or stock (or equity in the company) and share future profits through a quarterly dividend.
The owners of the stock are shareholders and the total number of stocks available are the shares outstanding. Shares of the company can be bought and sold in a stock market at a share price based on how much another buyer is willing to pay for that stock. The share price has in turn, become speculative based on future anticipated dividends, financial performance, industry and market trends among other things. Owning stocks carries risk because if the company performs poorly, the stock price can drop. Moreover, if the company fails and becomes insolvent, the shareholders would be last in a line of investors to recover their money as the bank lenders and corporate bond holders would have higher, prioritized access to the remaining company assets. Despite the risk, stocks have mostly outperformed returns from loans and corporate bonds due to their speculative, variable, potential upside versus the fixed gains of interest and bond.
One can get into the minutiae of stocks with hundreds, if not thousands of terms related to stocks and trading but the following are the key terms essential for your understanding:
If there’s one thing you should be excited about is that investing doesn’t have to be complicated. In fact, the less you tinker, the better you’ll probably do. That’s why lazy investors often beat the busy ones. The lazy don’t chase stock tips, panic-sell during downturns, or fall for the latest financial fad. They just stay the course.
Think of investing like planting an orchard. You don’t dig up the trees every week to see how the roots are doing. You plant, water occasionally and wait. That’s it. If you can sit still and resist the urge to “outsmart the market,” you’re already ahead of 90% of the crowd.
Saving is good, but investing is where your money starts working harder than you ever could. A $10 bill stuffed under your mattress today will always be $10, and with inflation, it will actually buy less in the future. Money invested in the stock market grows, not perfectly, not in a straight line, but over decades, it builds serious wealth. Investing is how you grow wealth. It’s how you put your money to work so that one day, you don’t have to.
Historically, the U.S. stock market has returned around 7-10% annually after inflation. That means money roughly doubles every 7 to 10 years. Put in $10,000 and forget about it, and in a few decades, the value will astound you. Investing isn’t about flashy stock tips, fads or day-trading apps. It’s about consistency, patience and using time as your greatest ally.
There are two kinds of investors:
Guess which group lazy people belong to? Exactly. Which group looks like the hare and which group looks like the tortoise?
Here’s the short list of what you actually need:
That’s it. No fancy trading apps, no insider newsletters, no stress.
The biggest mistake investors make is not letting time do its job. They sell when the market drops because it feels scary, then buy back in later when things “feel safe”, usually at a higher price. That’s like running out of the store during a sale and coming back when everything is full price again.
Remember, downturns are normal. Every market crash in history has eventually recovered. If you stay invested, you get the rebound. If you sell, you lock in the loss.
That’s the whole plan. It might feel too easy, lazy in fact, but that’s exactly why it works.
Sure, those things can make money. But they take work, knowledge, and a strong stomach for risk. For most people, especially the lazy, they’re distractions. Get your foundation built with boring, reliable index investing. If you still want to dabble in real estate or crypto later, do it with “fun money” you can afford to lose, not your retirement nest egg, money needed for the short term or any money you would lose hair over.
Being a lazy investor is about patience. You’re not chasing quick wins; you’re building a future that doesn’t depend on luck. Ten years from now, when friends are still stressing over stock tips or chasing the next big thing, you’ll be the one quietly sitting on a growing pile of wealth, wondering why everyone else makes it so hard.
One of the most dangerous mistakes investors make is chasing past performance. The stock market
Factor Based Investing:
Seasoned financial planners often categorize equities into nine factors called Factor Investing: size, low-volatility, value, momentum, asset growth, profitability, leverage, term and carry.
A factor-based investment strategy involves "tilting" investment portfolios towards or away from specific factors in an attempt to generate long-term investment returns in excess of benchmarks. Proponents claim this approach is quantitative and based on observable data, such as stock prices and financial information, rather than on opinion or speculation.[4][5] Factor premiums are also documented in corporate bonds[6] and across all major asset classes including currencies, government bonds, equity indices, and commodities.[7]
Critics of factor investing argue the concept has flaws, such as relying heavily on data mining that does not necessarily translate to real-world scenarios,[8] and that it may not be able to capture factor returns due to trading costs.
In 2021, certain Fidelity funds looked incredible. By 2024, they had “regressed to the mean” and returned to average performance.
Hot sectors, trendy funds, or flashy managers almost always disappoint in the long run.
The truth: markets revert to average.
That’s why low-cost index funds are the most reliable investment vehicle for most people. They don’t try to beat the market, they are the market. And over time, the market wins.
Timing the market is impossible. Even professionals can’t consistently predict short-term moves. That’s where dollar-cost averaging comes in. It’s a fancy term that epitomizes lazy investing: invest the same amount on a set schedule,weekly, monthly, or quarterly, no matter what the market is doing. If prices are high, you buy fewer shares. If prices are low, you buy more. Over time, your costs even out. It also removes emotion from the process. Instead of panicking when markets fall, you quietly celebrate, because it means you’re buying on sale.
History has demonstrated that over any 20-year period, U.S. stocks have never lost money. For long term investments, especially your retirement, you don’t take all the money out at the time of retirement. Only a small percentage should be taken out each, so the reality is that the investment horizon is 10-30 years even at age 60 since you want that money to last at least until your death.
Yes, there will be downturns. Yes, recessions will come. But if you keep investing steadily, you ride the long-term upward wave.
Successful investing isn’t about brilliance, it’s about behavior. Stay the course during downturns. Panic selling locks in losses. Ignore fads: crypto, meme stocks, hot sectors. They may rise fast, but they fall faster. Be patient: investing is a marathon, not a sprint. Dr. Jeremy Siegel summed it up well in his seminal textbook, Stocks for the Long Run:
In other words: don’t let fear (or greed) drive your decisions.
Chapter 5 >>