Bigger and Bigger Returns, Please

In all my reading about investing, there is one message which comes through louder than all the others.

"No one can time the market.  If they tell you they can, they're lying."

OR

"Investing is not about timing the market right, it's about time IN the market."

In spite of these frequently repeated adages, investors seem to consistently chase returns by frequently buying and selling stocks (or mutual funds or exchange traded funds) and creating churn in their portfolios, hoping to beat the investor next door.

When an investor chases returns, she has heard about a well-performing asset, and wants to invest accordingly.  However, as more investors hear about this strong performing asset, the price of that asset starts to rise.  This leads an investor to buying into popular assets at higher prices.

The reverse is also true. When a woman is invested in an asset that isn't performing well, the first instinct is to cut and run.  This leads to selling an asset when it's down, and the investor takes a larger financial hit than if the asset was held until it had a chance to recover.  (And this doesn't begin to cover trading costs or the tax implications to frequent portfolio turnover.)

It often feels right to buy after seeing gains and sell after losses, for two primary reasons:

First, we are greatly influenced by recent events. Our brains tend to project future conditions based on what has just happened, regardless of whether or not that is likely. So, good outcomes today make us believe things will be good in the future, while bad outcomes have the opposite effect.

Second, we love a good story. Our brains are wired to latch onto narratives, and once we've heard one that makes sense to us, it's hard to let go.

It is important to remember that markets are ever-changing and can be unpredictable. While it can be helpful to look back at narratives after the fact, they don't give us any indication of what might happen in the future.

This is why I strongly recommend having a plan - an investment strategy - one which you have developed with the guidance of a skilled investor.  But it's not enough to just have a plan.  A wise investor needs to stick to that plan. 

I know this isn't always easy - there are a lot of temptations out there that can be appealing to our mind and emotions. However, that's why you have me here - to help keep you disciplined and focused on your goals.

Investing is all about having clearly defined objectives, balancing risk and reward, and sticking with your investment strategy, even when your emotions might lead you to believe otherwise.  An accountability partner and investment advisor can help you do these things successfully - and help you build the wealth you deserve. Contact me when you're ready to move forward!