Are you a long term or short term investor? Many of us try to look at the big picture. However, when the equity markets have a losing day many of us become short term investors. There is a tendency for humans to believe that when times are good they will always be good and when times are bad they will always be bad.
Many people did not realize that the equity markets were up in 2012. In fact many people believed that they equity markets were flat or down for 2012. When they learn that the equity markets had a very good year they are very surprised.
Is this because they believe we continue to be in a poor economy?
In other words since times are bad, economy-wise, the equity markets must be doing poorly. History has proven this assumption is not necessarily the case. Perhaps the economy is not nearly as bad as many believe.
The Wall Street bullies want us to move our money from equities to ‘safe’ investments and then back when they can convince us times are good.
On a side note be careful of some ‘safe’ investments because some brokers and agents will not reveal all the conditions necessary to realize the attractive rate of return. For example, when a rate is quoted it is before fees and expenses are deducted. You will NOT earn anything near the quoted rate. Buyer beware.
During periods when the markets are down the Wall Street bullies will offer you ‘safe’ investments and your emotions will justify their purchase. This is when you become a short term investor.
Short term investors allow their emotions to control their investment decisions.
Unfortunately, some of these purchases cannot be reversed without substantial penalties. Often these penalties will make reversing the purchase imprudent.
Remember no one can tell you when to get into and out of the equity markets or specific asset classes. When you begin to focus on the long term and allow yourself to be coached you will reduce your anxiety and improve your overall results.
There is an academic and scientific method to investing which requires a long term focus. Forget the short term volatility because it will only raise your anxiety levels. We all need to focus on the future and trust that the free markets do work.
No one can tell you whether the next equity market move will be 20% up or 20 % down. However I can tell you that the next 100% move in the equity markets will be up.
When saving for retirement our goal is to keep ahead of inflation. For inflation is one of your top risks going forward. It silently and relentlessly eats away at the purchasing power of your money. One of the best ways to keep ahead of inflation is to own equities.
The most efficient way to invest is to stay invested. The equity markets are random and efficient. Take advantage of this by working with an investor coach. Someone who will work with you as a fiduciary.
To succeed long term you will need to follow three simple rules of investing. These rules are however difficult to follow consistently…
- Own equities
- Globally diversify
- Rebalance
Follow these three rules and focus on the long term and success will be yours.
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