Bitcoin, Picking Stocks vs Index

Last night I had a discussion with my brother. One of the topics we talked about was investing, and we have different views on it.

He puts his money in Bitcoin and also does some active investing in a particular sector. He is really into Bitcoin and very sure it will keep getting bigger, now and later. He likes the technology and even took a specific course on it. He also knows there are cycles in the world and the economy, and he wants to predict the market, because he believes there is a best time to get in or out. (He has done it successfully once and made a profit; that’s why he is so confident.)

I’m not interested at all (at least for now) in Bitcoin, active investing or trading. I don’t know anything about it and have no interest in learning it. My personal view is that trading is just like gambling.

I really believe in passive index investing. This approach is based on dozens of books and hundreds of videos and articles I have read and watched. I’ve done my homework, and I came to the conclusion that index investing is the best for someone like me.

Why index?

• You cannot predict the market. It’s impossible to know the best time to buy and sell your shares.
• In the long term, your shares always go up. No need to worry about a market crash, because if it goes very low or even to zero, it means the economy has already collapsed.
• The best thing you can do is buy and hold forever. Nothing else to worry about.
• The expense ratio is really low.
• Diversification. It always comes back to the same motto: “Don’t put all your eggs in one basket.”
• No analysis needed and no timing the market. Just do DCA (dollar-cost averaging). Very simple.

I invest in Indonesian and US indexes. I know index returns are not high, just moderate (10–15% a year), but that’s really enough for me.

Based on my calculation, if I keep doing this, I can reach my financial independence target in more or less 5 years from now. Let’s see.

Where we agree

We do share the same opinion on a few things:

• Only invest money you don’t need.
• Don’t start investing while your income is still low. Focus on building assets or your career so you can increase your income. A 10% profit on Rp1.000.000.000 > a 1.000% profit on Rp100.000.

Recommended books

• The Simple Path to Wealth – JL Collins
• Just Keep Buying – Nick Maggiulli
• The Psychology of Money – Morgan Housel