Coffee can investing is a strategy that aims to simplify investing since it involves buying stocks (or other assets) and then "forgetting" about them for a long period.
It’s a hands-off approach that requires patience and trust in your initial choices because you’re in it for the long haul. Learn what this strategy means and how it works in this article.
What is coffee can investing?
The term “coffee can portfolio” was coined in 1984 by portfolio manager Robert G. Kirby. He named it after an Old West practice of storing valuables in a coffee can which was then hidden under a mattress for safekeeping.
Imagine you buy some stocks or other investments and instead of checking their performance each day, week, or month, you simply put them away in a "coffee can"—metaphorically, of course. Then, you’ll forget about them for 10 years or more.
The idea is that you don’t worry about financial markets going up and down in the short term. Instead, you trust that over time, your investments will grow in value (and in some cases, even earn you dividends).
The pros of coffee can investing
The low-effort method of coffee can investing can appeal to some people, especially passive investors who don’t have a lot of time to learn advanced strategies and fine tune an investment portfolio.
Here are a few reasons this approach might be a good idea:
1. Less stress
You’ll save time and mental energy when you’re not constantly checking your portfolio and market performance. Investing long-term in assets with solid growth prospects can allow you to relax and stress less about your financial future.
2. Long-term growth
By holding onto investments like stocks and pooled funds for the long haul, you give them time to recover from any short-term drops, allowing them to potentially grow in value thru capital appreciation and dividends over many years.
3. Lower trading costs
Frequent buying and selling means you’ll shoulder more transaction fees and any applicable taxes. With a long-term strategy, you’ll pay fewer fees since you won’t transact as often.
The cons of coffee can investing
While coffee can investing has some benefits, there are also potential drawbacks to consider.
1. Risk of holding poor investments
If you pick the wrong stocks or investments, holding onto them for years can result in losses. Since you aren’t checking your investments regularly, you might not notice this happening until it's too late.
2. Lack of flexibility
Sometimes, market conditions or life events require adjusting your investment portfolio. With a “buy and forget” approach, it might be harder to make changes when you need them.
This can leave you with an outdated portfolio that doesn’t match your evolving situation and needs. That’s why it’s ideal to assess and rebalance your portfolio regularly so you can adjust if needed.
3. May require a lot of money
If you plan on making 1-time investments then forgetting about them, you’ll need to put in a lot of money all at once. This is especially true if you want to reach a huge amount for a significant goal, like retirement.
If you don’t have a lump sum to invest, it may be wise start small with peso-cost averaging. This still allows you to buy and hold investments, but you’ll put in smaller amounts on a regular basis like every month or every payday.
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