Ask anyone if they’re a long-term investor and nine out of ten will tell you they are most definitely long-term investors. That is, unless something crazy happens to the market. It’s like the profile pieces you read about someone’s workout and eating regimen. Every minute of the day is carefully planned, and it seems every person profiled sticks to salads topped with salmon and the occasional piece of dark chocolate.
In the real-world, life gets in the way, and it gets messy. OK, maybe it’s doable if you don’t have kids, or a job, or grandchildren, or any other fabric of life that makes it worth living.
Time and time again you see money flow into stocks when they’re up, and ebb into bonds when stocks are down. Take a look at the money flow late last year when stocks tanked—it flowed into bonds. It’s a self-fulfilling prophecy for sure, but the exact opposite took place at the beginning of this year—money flowed into bonds—as stocks rallied.
Avoid oscillating between asset classes by making both bonds and stocks part of your portfolio at all times. Don’t take it from me. At the end of his life the legendary Jack Bogle said about bonds and stocks that half the time he loved them and half the time he hated them. Sage advice all-round, as usual from Mr. Bogle. Setting up such a plan isn’t easy, but it can prevent you from making emotional decisions at the worst times.
That’s the difficulty of being a successful long-term investor. Life gets in the way. It’s easy to move into bonds when stocks are down. You start to wonder who will take care of your family when you’re dead. It pulls at your emotions and you cannot feel better until you know you’re in “safer” investments. That’s what makes investing successfully so tough.
Investing successfully can feel terrible. It can be grueling. And once you’ve retired and you’re no longer working, it’s worse by a factor of 100x to be kind.
We would all like to be successful investors much like healthy eaters that wink-wink stick to salads and salmon. But we all know life gets in the way and oftentimes it’s helpful to have an advisor to keep you on track when things get messy and salmon isn’t on the menu.
Read the entire Dead or Alive? The Future of Long-Term Investing series.
E.J. Smith - Your Survival Guy
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