Successful investing is not, per se, a portfolio problem, but rather a people problem. No matter how well designed and engineered a portfolio is, it can easily be destroyed by imprudent investor behavior.
Unfortunately, the true enemy of every investor lies within.
The instincts, emotions, and even biochemical makeup of human beings drives them to gamble and speculate with their money, even when they don’t mean to. This problem is multiplied exponentially by financial institutions that profit from this self-destructive cycle. You will see that this cycle is hard wired into every human being in the world. No one is exempt.
After studying the collective behavior of thousands of real world investors over the past decade, several truths have made themselves clear. It is my belief that many, if not most financial product sponsors are aware of this dilemma,
but either don’t care that the investor is harmed by it,
or are ignorant of the damage that they unknowingly perpetrate on the American investor.
In addition to the dangers of speculating, many people planning for retirement confuse the safety of a ‘steady’ pay check with safety of income. A ‘steady’ pay check will not lead to a steady income. A ‘steady’ paycheck will not increase with inflation. A steady income will increase your paycheck for the increased cost of living.
Increasing your income can be accomplished only, in my opinion, by holding a portfolio which includes stocks. Yes, you have to deal with downside volatility but with it you receive upside volatility. With the right level of risk for your portfolio you can easily weather the downside volatility.
Most if not all investors have a very difficult time dealing with the downside volatility on their own. Of course, everyone loves upside volatility. But dealing with downside volatility requires the help of an investor coach/fiduciary adviser. Your coach will help build the right portfolio for you and then provide the education and discipline to remain on course.
Remember you can at the same time have a ‘steady’ paycheck and run out of money. If, for example, inflation averaged 3% for 10 years your cost of living would increase more than 34%. That means with your ‘steady’ paycheck of $1000 today in ten years you would require $1343 to maintain your cost of living.
So working with an investor coach/fiduciary adviser will help you maintain your cost of living. And protect you from your true enemy, which is YOU.
To succeed in investing you must own equities……globally diversify….rebalance.