- If you want to try and maximize returns you can certainly dial up the risk.
- That comes with a cost of increased volatility but is a great tradeoff if it maximizes returns.
- Does it though? Does it?
"Your Focus Determines Your Reality." Wise words by Jedi Knight Qui-Gon Jinn.
Investors today are in the grip of fear of missing out or fondly known as FOMO. Just this week, and this is no joke, we got to know of an ETF called FOMO that is in the works. Their focus is on getting in on the action at all costs, fundamentals be damned. Since that is their focus, does that mean their returns will be maximized? More often than not, they will not. A key reason for this has been chasing stocks at the top and selling them at bottoms. Another reason is that, if everyone is focuses on getting in right now, whose is going to be left holding the empty bag when people start taking profits? Losers are inevitable. These will be the "average investors".
Prior to the pandemic, the 20 year returns of average investors was at the lower end of the scale at 2.5%.
We do not have the data inclusive of 2020 and 2021 to date, however, we will not be surprised if the average investor has done better for themselves during this period. Does that mean that the pandemic changed the investing acumen of the average investor and the story forward will be the opposite of the past? Do you think this past year has changed the way markets operate and now the only direction it will move is up?
If you do think so, you should continue with buying stocks as they are rising to feed your FOMO and your jam.
If you are willing to consider that maybe the current market euphoria will witness a correction, and want to be prepared for it, change your focus. Shift your focus to lowering your volatility to the point that you were able to stay invested through ups and downs.
Change your focus so that your reality is above average long term returns!
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