Are you inspired or scared? A case for optimism…..
05 Mar 2015
“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than have been lost in the corrections themselves.”
-Peter Lynch, legendary investor and author
Investing can be such a rewarding and enjoyable experience; yet many of us are completely terrified with the idea and don’t quite understand how it really works. We have this unrealistic expectation that we can’t make mistakes. We always have to make money on every investment, or we are missing out on something. This is absurd. Poor investments and poor returns are part of the learning curve.
If it were that easy, everyone would make 15% per year on their investments. The real reason we struggle to achieve normal portfolio returns, in my opinion, has a lot to do with us and what we think successful investing really is or isn’t. Let me explain. Today there are over 10,000 stocks and investment companies to choose from. Let me say that again, 10,000. That means there are a lot of options out there. Imagine going to a restaurant and having 10,000 different food choices.
Looking at NYSE Index data, the mean duration of the holding period for a stock by US investors was around 7 years in 1940. This stayed mostly the same for about the next 35 years. However, by 2007, it was around 7 months….Why? Fear? Greed? Both?
At Premier Investments of Iowa, Inc. we have developed a concept called the Premier Bucket System (PBS). Based on our system, a 7 month holding period would reflect money in the “liquid” bucket, or Bucket #1, and would reflect investments in cash, not growth. Yet, today people treat their “growth-long term” money (Bucket #3) as liquid money and just can’t seem to sit still. You don’t plant a tree and then stare at it and watch it grow do you? Well, this is what many investors do with their growth money…
Dalbar (a leading independent expert for the financial industry) has released data to validate this point for me. How can you achieve the long term returns when you are not investing long term? Why do you treat Bucket #3 money as if it is Bucket #1 money? It’s a great study in patience or should I say lack of patience.
I have believed for many years that those investors who have the following traits fair well when compared to others:
1) Have a plan. I mean a real written Financial Plan or Retirement Income Strategy that you can refer to in times of chaos and prosperity. This way, you can try to remove the emotions of Greed and Fear in your planning. It’s hard to do, but it is not impossible if you (and your advisor) have the right mindset.
2) Have your money broken up into “responsibilities” or buckets. You need to buy a car; well Bucket #1 is in cash so you have the money available. You need an increased paycheck in retirement; well bucket #2 is providing interest/dividends for you. See where I am going with this?
3) Stay positive and tune out the media.
4) Look for opportunities when others are looking for shelter.
5) Be inspired each day not scared. Living in fear is unhealthy and unproductive, and so is living in the past. At the end of the day, what can you really do about all this anyway? Not much.
For much more information on this, please reach out to me to receive a free copy of my popular “Retirement Survival Guide-7 Tips for Financial Success”. Better yet, go to www.premierinvestmentsofiowa.com and download it for free.
Thanks and Good Luck!!
Jeffrey Johnston, ChFC
Investment Advisor Representative
- “How Many Stocks do You Need to be Diversified?”
- “Lengthening the Investment Time Horizon”
- “How Retirement Investors Hurt Themselves”
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