Investing is simple, but not easy.
Warren Buffett, the world’s most successful value investor, is often looked to for guidance and knowledge about the world of investing and the world in general. His famous quotes and aphorisms provide as much insight on life as they do financial markets. One of my favorite Buffett quotes is, “Investing is simple, but not easy”. I believe he is referring to the behaviors of the investors more so than the discipline of investment management. The basic principles of diversification and systematic investing are time-tested and incredibly effective, but not easy.
First things first – investing is hard. It just is. It involves money, one of our most sought after possessions. The value of market investments fluctuate on a minute-by-minute basis and individual portfolio balances can be monitored and fretted over just as often. This level of frequency alone can cause investors to make the wrong decisions at the wrong times. Think about how unnerving it would have been to see how much your house valuation fluctuated on a monthly basis during the housing crisis in 2008-2009. For this reason alone, a significantly higher percentage of people hit the sell button on their investment portfolios than their houses or condos.
Most financial planners don’t want to talk about the fact that investing is hard. They worry that it will make their clients shy away from investing. Just because investing is hard doesn’t mean we should avoid it. Many great things in life are hard. Exercising is hard, parenting is hard, eating a healthy diet is hard. That said, success of long-term investing is found in the consistency and perseverance of the investor – much like the perseverance needed to keep a healthy diet or workout regimen. It’s important to be dedicated to an investment plan that requires monthly or annual contributions regardless of the market conditions at that time. Force yourself to be objective, not subjective when reading news headlines and articles. Avoid clickbait internet sites predicting the markets will never recover. Just as procrastination is the enemy of most exercise regimens and dessert menus destroy healthy eating plans, emotional decisions based on short-term market fluctuations can do an equal, if not, exceeding amount of damage to a well planned, long-term investment strategy.
We’ve all had moments where it can be hard to be completely objective, but making a conscious effort to be consistent in your investing will pay off in the long run. As always, if you have any questions don’t hesitate to reach out or schedule an appointment.