How to Make Money Doing Nothing

Is it possible to do absolutely nothing and make money?

What is the nothing you are doing? How much can you make?

The answer will surprise you.

Okay, you did do ONE thing.

I would like to think that the ONE thing you did was take my advice about investing but I’ll never know.

The ONE thing you did was on December 31 of 2020. You invested $100.00 in a passive S & P 500 fund.

Through the rest of 2021, you forgot about it. You had too many other things to do.

Occasionally you would hear news about the market. You didn’t pay much attention.

Too many other things to do that are more interesting!

But you still made money.

Not because you were brilliant, or lucky. 

You did not follow meme stocks, Wall Street Bets or Redditt traders.

You did not “invest it all” in crypto currency.

You did not ask anyone for “stock tips”.

You did not place one stock trade all year.

You did not research any companies.

You spent no time studying finance, economics, or mathematics.

You did not take excessive risk.

You did not diversify (did I just say that?).

You did not try to “time “the market.

You did not become anxious wondering if you made the right decision.

How much money did you make?

For all the things you did not do, the $100.00 you invested in an S&P 500 fund is worth $125.00 (approximate as of November 15th, prices subject to change).

In investment terminology your investment has returned 25% year to date.

And you didn’t do anything.

If you invested $1000.00 in December of 2020, your investment is now worth $1250.00.

Could you use an extra $250.00?

And what did you do? 

Anything and everything EXCEPT look at how your investment was doing. 

What would your $100.00 be worth today if you invested 3 years ago on December 31st of 2018?

About $195.00.

Or, if you invested $1000.00, it would be worth about $1950.00.

2021 has delivered the third year in a row of exceptional stock market returns.

In 2019 the S&P 500 returned 31.49%.

In 2020 the S&P 500 returned 18.40%.

Not bad. You did nothing and your investment almost doubled in three years.

Doubling your investment, also known as a 100% return in three years, is unusual. 

A more common practice to estimate time and returns is known as the “The Rule of 72”.[2]

The Rule of 72 tells you how long it will take for your money to double given an estimated annual return.

For many years the assumed annual rate of return for pension plans was 8%. Under the rule of 72 it would take 9 years for your investment to double.

An annual rate of return does not mean that returns were 8% every year. An Annual rate of return is similar to an average over return over a specific time period.

But 3 years? That is equivalent to an annual rate of return of 24%.

You can tell I am really excited about this.

No one knows for sure what returns will be each year. We do know that there will be years with positive returns and years with negative returns.

We also know that if you do not invest there is no way for any money you have to make money.

Where else can you make money doing nothing?

I’d like to do nothing all day long……

Cheers!

[1] Warren Buffett’s favorite investment

Billionaire investor Warren Buffett has said that an S&P 500 index fund is the best investment most Americans can make. In fact, he stated that he wants his wife’s money invested in such a fund after he’s gone. This might seem a bit surprising since Buffett is well-known for his stock-picking ability.

First of all, he isn’t necessarily saying that it’s a bad idea to buy individual stocks if and only if you have the time, knowledge, and desire to do it right. However, most Americans don’t.

Buying a mutual fund or an ETF that tracks the S&P 500 is easy and quick. It doesn’t require the research that investing in stocks with solid growth prospects demands. Investing in an S&P 500 fund (either a low-cost mutual fund or an ETF) guarantees that you’ll do as well as the stock market over time. And, over the long term, that performance has been quite good.

[1] S&P 500 Index Fund Average Annual Return | The Motley Fool 

[2] Rule of 72 Definition, Formula, & Calculation (investopedia.com) 

S&P 500 Historical Annual Returns | MacroTrends

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.