This has been a wild investing year to date, no doubt. But maybe this time it’s different?
Your diamond hands holding some crypto assets might have turned to stone.
Stocks are getting hammered, even some beloved dividend paying stocks are well down in price.
Bonds offer no place to hide.
Real estate is correcting too.
Cash is getting eaten by inflation.
Is now the time to change your investing plan?
Read on to learn our take.
Lessons from market history and Bogle
The late, great John Bogle once wrote:
“To invest with success, you must be a long-term investor.”
Well, the facts are, most people are not.
Think of it this way – most people cannot forecast their grocery list for the week, let alone make a sound financial plan some 30-years ahead.
There’s nothing wrong with that per se.
What we’re trying write and say is planning and re-planning is work – planning is a valuable skill – and this site is here to help you undertand that, and continually get better at that to manage your cashflow along with your portfolio.
You might recall up until his death, Bogle was a financial industry pioneer. As the founder of The Vanguard Group, which specializes in low-cost index funds, he had a phenomenal impact in driving down the costs and complexities of market participation for millions of retail investors.
In fact, many of these investing concepts were not popularized until Bogle popularized them.
Here is some inspiration related to market history and theory, the next time you consider selling all your stocks, overturning your portfolio into cash, or liquidating all your fixed income.
- “In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses.” As such, the long-term investor should be chiefly concerned being invested and earning the cashflows (i.e., dividends) and growth generated by the businesses that he or she owns.
- “Time is your friend; impulse is your enemy”. Bogle urged investors to be patient and to avoid hasty decisions. Further, once said investor has started on a solid long-term investment strategy (with stocks, with bonds, with real estate, or other), the best thing we can do as investors is to let time and compounding work for us. Getting impulsive and changing our minds, frequently, is not an enbler.
Did you know….?
“$81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday.”
Source: The Psychology of Money.
The key point here is that while Warren Buffet is often cited as one of the best investors of our time, it’s actually time that Warren Buffett has invested that has been his superpower.
- And finally, maybe the best: “Your success in investing will depend in part on your character and guts, and in part on your ability to realize at the height of ebullience and the depth of despair alike that this too shall pass.” So, markets will market. There will be times of market despair but there will also be times of joy in terms of massive returns. It is at these extremes where opportunities are found and risks are avoided.
Some sources for our quotes.
Is now the time to change your investing plan?
Our answer to this simple question, certainly for today’s context, is absolutely “no”.
Your answer is always “no” when it comes to changing your investing plan assuming you answer “yes” to our three key questions below:
1. Do you hold a bias of equities over bonds? If yes, don’t worry – carry on. If no, consider that rewards from the stock market, over bonds, and the stock market rewards are far higher than idle cash under your mattress over the long haul.
2. Are you controlling investment fees, keeping them as low as possible? If yes, please continue! If no, consider financial fees as wealth killers – something to manage better.
Our friend Larry Bates who wrote Beat the Bank told investors these principles:
Embrace wealth builders:
- time, and
- rate of return.
Added together, more money, more time to compound/grow and higher rates of return are ideal for investors.
Steer far away from wealth killers:
- taxation, and last but not least,
Any one or more of these things are wealth destroyers you will need to fight as you work through your investing journey.
3. Are you controlling investment risk through diversification? If yes, well done. If no, consider that diversification, not just owning different companies, but owning different sectors in different parts of the world, can offer retail investors some “free lunch” – portfolio risk reduction through international diversification. Investment risk is usually lowered in a worldwide portfolio of stocks vs. domestic stocks only.
If you have three “yes” answers above, we believe you are well on your way to wealth-building just by owning lots of equities, managing your financial costs, and controlling your risk through diversification.
So, you do not need to change your investing plan.
Stock market history can be the best teacher – even if this time is different
“The wonderful magic of compounding returns that is reflected in the long-term productivity of American business, then, is translated into equally wonderful returns in the stock market. But those returns are overwhelmed by the powerful tyranny of compounding the costs of investing. For those who choose to play the game, the odds in favour of the successful achievement of superior returns are terrible. Simply playing the game consigns the average investor to a woeful shortfall to the returns generated by the stock market over the long term.” – John Bogle, founder of Vanguard Group.
As an investor, you need to accept market volatility, massive price swings, and potentially prolonged periods of market lulls because as an investor you are getting paid (eventually) to enjoy the ride.
This means investors should try and stay calm (and do nothing at all) even if extreme market movements may occur from time to time.