The One Investment Truth That Never Changes
Written by David Fabian, May 11th, 2017
I’ve been an investment advisor for a fair amount of time now. I’ve seen many investors come and go over my tenure – clients, portfolio managers, brokers, traders, etc… Some that are quite successful and others that are downright miserable. The one guiding truth to every single experience is that people are their own worst enemies when it comes to investing.
The biggest risk to your money isn’t a bear market, rising interest rates, the Federal Reserve, inflation, high fee mutual funds, war, famine, or any other imaginable event. It’s You.
- It’s your weird hang-up on having too much cash (or too little).
- It’s the fact that you don’t have any patience to wait for your money to compound over decades.
- It’s the compulsion to hire an active manager and then immediately expect index-like returns.
- It’s the fixation that you passed on Google when it IPO’d, so you bought Snapchat instead, even though you don’t know what they do. Now you’re getting your face ripped off.
- It’s the urge to spend $15,000 on a family trip to Disneyland, put it on a credit card, and then spend 10 years paying it off at 17% interest.
- It’s the notion that you retired with a $1 million 401(k) and thought you could spend $75k/year in perpetuity. Now you realize that you needed a lot more than that.
- It’s spending 6 months researching the perfect flat screen TV. Then hearing a 60-second commercial for “day-trading real estate” and decide to put all your money behind that on the spot.
- It’s jumping from mutual funds to ETFs to stocks to options and then starting the cycle back over again.
No wonder you’re so neurotic.
It’s the emotional aspect of money management that can’t be taught in a classroom. It’s the rising fears you have that you aren’t keeping up with the crowd. It’s the terror you feel in the pit of your stomach when the stock market falls 20%. It’s the fire hose of frightening headlines that assault our senses at every turn.
Everyone preaches buy low and sell high, but it’s not all that easy in practice with real money on the line. It feels awful the entire time you are doing it and you never get the timing perfect either way.
The best investors I have met over the course of my career never get too high or too low on the emotional spectrum. They always have a sense that things will ultimately work out. No one is perfect. No strategy is infallible. However, you must pick an investment routine or manager that you identify with and stick with that process through thick and thin.
That’s what produces a successful outcome. It’s not the vehicle, it’s not the expenses, it’s you.
Learn to understand this flaw in our wiring. The knowledge that you can control your emotional responses and behavioral choices is a huge advantage over the course of your life.
Put some serious thought into this one. I guarantee it will be worth your while.
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