Achieve Better Investment Outcomes
In theory, being a successful investor is simple.
Spend less than you earn, invest the difference for three decades, and withdraw what you require in retirement. Job done.
The education, resources, and tools required to accomplish this have never been more readily available. In fact, we are practically drowning in data!
In practice, however, being a successful lifetime investor has never been more challenging.
An abundance of investment options, breaking news delivered by phone notifications, and direct access to the competing views of “experts” mean that it’s no simple task.
So, how do you make sense of it all?
A few simple actions can reduce the noise you are exposed to, placing the odds in your favour. After all, the greatest challenge you will face as an investor is one you cannot run away from; the emotional turmoil of living through a never-ending series of crises.
Is It Different This Time?
Over seventy years ago, Benjamin Graham (mentor to the world's greatest investor, Warren Buffett) recognised the root of the problem: "The investor's chief problem, and even his worst enemy, is likely to be himself."
Whilst we’ve largely solved the mathematical element of the investing challenge, no one has yet solved the emotional part. We propose that no one will.
The behavioural challenge of acting rationally under uncertainty feels like it has been exacerbated by many of the developments we generally consider to be positive. We now have "expert" opinions on every investment, accessible at the click of a button (or swipe of the finger), with near-zero trading costs.
We know in theory that patience and discipline are required for investment success, but knowing something is not the same as experiencing it. In the middle of a crisis, being disciplined is easier said than done. But this is, and always will be, the defining characteristic of successful investors.
Whilst each crisis has its own name (Covid-19, Ukraine, Cost of living crisis) and its own unique characteristics, they all build up to the point where it forces you to ask the golden question: is this time different?
In this moment, your human side is screaming at you that this time is indeed different. How could it not be given everything that is going on.
However, at that moment, your future self needs your present self to have the clarity of mind to acknowledge that while each crisis comes by a different name, they are in essence, all the same.
Whilst we can’t prove anything about the future (after all, there are no facts about the future), we can look to the past and marvel at how resilient both humans and markets have been through every type of crisis.
How is each crisis the same? The fact is that they are unlikely to matter in three decades.
In fact, you likely won't remember most of them in three years’ time.
You’ve Done This Before
You do not have to accept the above only in theory. You have your own unique history as an investor, and you have likely withstood many emotional challenges in the past.
If investing is more behavioural than intellectual, reflect on your past self’s good behaviour during difficult times. Investing is not one long cognitive challenge but, rather, a series of intermittent behavioural challenges.
Despite what we might like to think, nobody can 'time the market'. The market temporarily declines, before advancing to new highs. The real winners are those who remained invested.
Amyr Rocha Lima, CFP® is a financial planner who specialises in working with successful professionals age 50+ to help them reduce taxes, invest smarter and retire on their terms.
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