Put Your Portfolio on Autopilot and Enjoy the Ride

Beginner, Psychology

I’m a big fan of asset allocation. Rather than slaving over daily market news to chase fleeting profits and avoid unpredictable losses, smart investors can create an intelligently constructed portfolio that grows and protects their hard-earned money with low stress and minimum effort. Like following a simple recipe to bake a cake from scratch, all you have to do is purchase a handful of low-cost ingredients, combine them in the right proportions, and let chemistry, heat, and time do all the work. Simple but sophisticated portfolio ideas designed by some of the best minds in the business can help you meet your important life goals while freeing you to focus your own energy on the things in life that truly matter. And with just a small amount of coaching, anyone can do it!

What’s not to like?

Well, to be honest there is one thing that has always sorta rubbed me the wrong way. It’s not a problem with the strategy itself, but an inherent communication issue dripping in bias that I believe subtly chases off a lot of people new to the concept. Asset allocation has a marketing problem, and it all comes down to terminology.

Ever since John Bogle created the world’s first index mutual fund in the early 1970’s, the terms “passive” or “lazy” have been used to describe the idea of simply investing in a market segment in the most cost-efficient way possible and accepting whatever the market offers. Those words stand in direct contrast to ones attributed to professional investors looking to beat the market with “active” and “hard-working” trades based on diligent research. See the difference in tone?

Index investors over the years have generally shrugged and owned the terms while pointing to data showing that passive investing using lazy portfolios does quite well compared to the average active investor net of fees. But there’s no question that the words commonly used to describe the approach carry a negative connotation.

Passive. Lazy. Couch potato. Seriously? We can do better.

To be fair, I do understand how these terms likely caught on. Aside from the potential marketing angle of well-funded financial firms talking down to the competition, active vs. passive does communicate a decent amount of information about the personal activity involved. So finding an equally descriptive alternative is trickier than it sounds. But I do think it’s important, as I believe the community embrace of such slanted terminology does the indexing movement a real disservice when speaking with new investors.

Sometimes inspiration shows up in unexpected places, and I was genuinely excited when I recently read a few articles about Tesla that included an anecdote about innovation that got my attention. Speaking about the market acceptance of self-driving cars, Musk likes to talk about elevators. His full comments are all over the place in a variety of interviews (like this), but by combining several different quotes into a single paragraph you’ll get the full idea.

“Autopilot is a good thing to have in planes, and we should have it in cars. I think it’s going to become normal, like an elevator. There used to be elevator operators and then we came up with circuitry so the elevator knew to come to your floor. Now no one wants an elevator operator because the automated elevator stops at the floors and it’s much safer than the elevator operator. Cars will be like that.”

That idea really struck a chord with me. Nobody steps into an elevator today, waits patiently for the door to close behind them, presses the button to their desired floor, and thinks “man, I feel really lazy and passive for not micromanaging all of this myself.” Going a step further, I bet you’ve also never wished for the old-school elevator operator who did all the same manual steps for you and expected a tip for his efforts. It just happens safely, repeatably, and autonomously, allowing you the simple luxury of enjoying the ride.

Musk is working really hard to translate that same experience to cars. By pouring lots of money and research into autopilot systems and software, he’s building towards a vision of the future where you will no longer need to constantly sit behind the wheel of a car with your hands at 10 and 2 and your eyes wide open just to stay on the road. And you won’t have to pay another driver to do it either. With the right setup and a few custom settings, you’ll eventually be able to get from one place to another with no human input at all. And transportation will be safer than ever because the systems will have faster reflexes than even the best drivers. How would you have reacted in all of these situations?

Like the seamless automated control systems in an elevator or the newest self-driving cars, proper asset allocation is the autopilot for modern portfolios. You can always choose to control your investments manually and carefully plan individual trades if you enjoy doing so. If you don’t trust your own abilities or simply prefer to focus your attention on other things, you can also pay a professional with the skill and attentiveness to do it for you. But if you want to take advantage of the best strategies that modern investment researchers have to offer, save a lot of money in the process, and protect yourself from unexpected market turmoil that even the most talented active investors struggle to safely navigate, a simple portfolio built with index funds is a great choice. And once it’s set up, the only real input it requires from you is an annual maintenance check to keep the portfolio balanced.

It’s not active versus passive. It’s manual versus autopilot.

To someone not familiar with the underlying systems working behind the scenes, autopilot investing may sound too good to be true in chaotic economic times. But properly constructed hands-free portfolios are way more independently resilient than you may realize. One good example is the Swensen Portfolio, which competes surprisingly well with its namesake’s high-powered Yale Endowment at delivering healthy, perpetual cash flows even in the worst times to invest.

Another classic is the Permanent Portfolio that has been remarkably consistent for 50 years of ever-changing economic conditions. Think of the smooth ride of a modern elevator and compare it to the smooth growth of the Permanent Portfolio no matter what year you started. How many advisors do you know who could keep that up for five decades with no off years?

Of course, simply buying a random combination of index funds doesn’t automatically mean you’re safe or that the ride won’t occasionally get a bit bumpy. Every portfolio has its own unique character, and it’s important to choose the right one for you. That’s what Portfolio Charts is all about. From the many professional portfolios to the flexible charts that let you design your own asset allocation, there are tons of resources for all types of investors looking to branch out from old-school active management and explore an exciting, sophisticated, and very modern way to invest.

So if you’re new to index investing and wondering how it compares to the actively-managed variety, just know that its apparent external simplicity can hide a lot of intelligence under the hood. Take the time to choose the right portfolio, and instead of exhausting yourself behind the wheel of your long financial journey you can choose to safely let go and enjoy the ride.

Are you a manual investor or an autopilot investor? There’s no wrong answer. But if you’re inclined to explore the latter, there’s no better day than today to learn more. And there’s no better place than Portfolio Charts to start.


Have the resources here helped you put your investments on autopilot?