There was an article going around Facebook titled 13 Things Mentally Strong People Don't Do. Hopefully you recognize a lot of your own behaviors from the list but there were a couple that relate to investing.
- 4. They Don't Waste Energy on Things They Can't Control
This is a very important investment concept because we have no control over what the market does. That also means we have very little control performance in the short run. We have a little more control over performance in the long run which I will get to in a moment.
Once you can accept that we have no control over what the market does, and that is not easy to do, then you can begin to devote energy to the things you have a better chance of controlling like your savings rate, your spending habits and you investment discipline.
Having a little more control over long-term investment results can come from training yourself to not succumb to the many behavioral dilemmas that do in so many people like selling in a panic, chasing the strategy that has been working the best lately, loading up on some hot segment of the market, not having an adequate understanding of risk or any of the other ones we looked at before,
- 13. They Don't Expect Immediate Results
If you are 85, healthy and out of money you are going to have some serious obstacles. Investing is a long-term proposition so that if you are 85 and healthy you have enough left to reasonably fund your lifestyle. When you are 85 you won't remember your market performance when you were 50, 55, 60 or any other age, you will only know whether you still have a portfolio kicking off an income stream.
Any established investment strategy you choose (indexing, dividend growth, asset allocation, others) will have a basis for working. Any of them could fail or have some sort of freak out that causes you to question your devotion to that strategy but it is very likely that a value stocks strategy (as one of many possible examples) is going to give more than a decent shot of having enough over a 40 year investment career provided there is an adequate saving rate.
Over a 40-year period your chosen strategy might net out to be the best, the worst, in the middle, it might beat the market or it may lag the market. But if you save enough and avoid doing a lot of stupid things then your long-term result should give you a decent shot of giving you enough when you need it.
To paraphrase the quote from our friend Bill in here in Walker that I have mentioned many times - you can figure all of this out now, or you can figure it out later but if you can figure it out now you'll be much happier.