My Worst Investment Ever Podcast Enrich Your Future 40: Why Passive Investing Gives You Back What Wall Street Steals
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 40: The Big Rocks.
LEARNING: Passive investing will give you the freedom you need.
“Indexing and passive investing have the ‘disadvantage’ of being boring. I admit it. However, if anyone needs to get their excitement in life from investing, I’d suggest they might want to consider getting another life.”
Larry Swedroe
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 40: The Big Rocks.
Chapter 40: The Big Rocks
In Chapter 40, Larry explains why passive (systematic) investing is the winning strategy in life as well as investing.
Like all the other chapters in the book, this one begins with a story used as an analogy to help understand a financial issue. In this one, a time-management expert fills a mason jar with large rocks. “Full?” she asks. The class agrees. She adds gravel, sand, and water – each filling the spaces between. When a student suggests the lesson is about fitting more into busy schedules, she corrects them:
“If you don’t put the big rocks in first, they’ll never fit at all.”
The investor’s jar
Larry explains the metaphor’s profound implication for wealth:
- Big rocks = Family, health, growth, legacy
- Gravel = Stock charts, earnings analysis
- Sand = Financial news, market commentary
- Water = Trading forums, portfolio tinkering
Larry explains that active investors start with gravel and sand, leaving insufficient time for the big rocks. They spend much of their precious leisure time watching the latest business news, studying the latest charts, scanning and posting on Internet investment discussion boards, reading financial trade publications and newsletters, and so on. Their jars fill with noise, leaving no room for life’s essentials.
Passive investors, on the other hand, ignore the ”noise” (the sand, the gravel, and the water) and place big rocks first. Their strategy operates quietly, driven by low-cost index funds and disciplined rebalancing. The result? Their jars hold what truly enriches life, giving them a sense of freedom and independence.
Two stories, one lesson
1. The physician’s regret
During the 1990s bull market, a doctor would spend nights analyzing stocks after 12-hour shifts. He turned $10,000 into $100,000 – but his marriage was on the verge of collapse. His wife no longer had a husband; his child lost a parent to the glow of stock charts. When the tech bubble burst, the money vanished.
The wake-up call was brutal: He had traded first steps and bedtime stories for digits on a screen. After reading Larry’s book, he switched to passive investing, which helped him salvage both his finances and his family. Now, he was playing the winners’ game in life and investing.
2. The executive’s discovery
A Wharton MBA and corporate treasurer spent decades analyzing stocks after work. Upon adopting passive investing, he calculated a shocking truth: He wasted 6.5 weeks per year on futile research.
Worse, this “gravel” wasn’t neutral – trading fees, taxes, and behavioral errors eroded returns. By eliminating the noise, he reclaimed 500+ annual hours for family and passions.
Why boring is the bravest choice
Larry notes that indexing and passive investing have the ‘disadvantage’ of being boring. However, he continues, investing was never meant to be exciting despite what Wall Street and the financial media want you to believe. Investing is supposed to be about achieving your financial goals with the least amount of risk.
Making the ‘boring’ choice in investing can actually be empowering, as it puts you in control and builds confidence in your financial future. Larry further explains that indexing, and passive investing in general, not only allows you to earn market returns in a low-cost and tax-efficient manner but also frees you from spending any time at all watching CNBC and reading financial publications that are essentially no more than what Jane Bryant Quinn called “investment porn.”
Play a winner’s game
If you find that you need excitement from your investments, consider setting up a separate “entertainment” account. The assets inside that account should not exceed more than a few percent of your total portfolio. Invest the rest of your assets in what I believe to be the winner’s game.
Further reading
- Paul Samuelson, Quoted in Jonathan Burton, Investment Titans (McGraw-Hill, 2001).
Did you miss out on the previous chapters? Check them out:
Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform
- Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds
- Enrich Your Future 02: How Markets Set Prices
- Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers
- Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find?
- Enrich Your Future 05: Great Companies Do Not Make High-Return Investments
- Enrich Your Future 06: Market Efficiency and the Case of Pete Rose
- Enrich Your Future 07: The Value of Security Analysis
- Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return
- Enrich Your Future 09: The Fed Model and the Money Illusion
Part II: Strategic Portfolio Decisions
- Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t
- Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill
- Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play
- Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance
- Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon
- Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe
- Enrich Your Future 16: The Estimated Return Is Not Inevitable
- Enrich Your Future 17: Take a Portfolio Approach to Your Investments
- Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans
- Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe
- Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management
Part III: Behavioral Finance: We Have Met the Enemy and He Is Us
- Enrich Your Future 21: Think You Can Beat the Market? Think Again
- Enrich Your Future 22: Some Risks Are Not Worth Taking
- Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions
- Enrich Your Future 24: Why Smart People Do Dumb Things
- Enrich Your Future 25: Stock Crashes Happen—Be Prepared
- Enrich Your Future 26: Should You Invest Now or Spread It Out?
- Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities
- Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases
- Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks
- Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot
Part IV: Playing the Winner’s Game in Life and Investing
- Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
- Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
- Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
- Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers
- Enrich Your Future 36: The Madness of Crowded Trades
- Enrich Your Future 37 & 38: The Calendar Is a Crook & Hot Funds Are a Trap
- Enrich Your Future 39: More Wealth Does Not Give You More Happiness
About Larry Swedroe
Larry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.
Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.
Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.
Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.
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Connect with Larry Swedroe
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
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- Finance Made Ridiculously Simple
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