The Fallacy of Chasing Market Returns – Part 2
So the last post, we began discussing the extreme fallacy in trying to beat the markets. Although I believe it is truly a fool’s errand, I won’t spend as much time or words ranting and pontificating (so you can thank me later!) in this post. Today will be spent giving you what you should be doing or at least thinking about. As always, these are merely suggestions. Any advice I give you here should be considered in context of your entire financial plan, so be sure you consult with a financial professional prior to implementing anything.
Leave behind the days of “in and out” of the market.
One of the more insightful quotes of Sir John Templeton was when he said,
“The best time to invest is when you have money. This is because history suggests it is not timing which matters, but time”.
Now, who are you and I to question one of the most successful investors of all-time? Let’s explore his perspective because there is a simple wisdom behind what he says. Googling Sir John’s history is helpful, because it will uncover that he and his family survived some of the worst times in US economic history. Despite the struggle his outlook remained positive. My observation in all my years of helping individuals invest their money is that, rarely is the focus not on the myopic goal of beating the market. Sir John’s simple wisdom suggests a singular focus, but on something much more valuable than the money we invest—it is time. All around us we see the result that time has on nature (probably the most profound of all) and in all aspects of our lives. And although we all learn the lesson of compounding interest from books like The Richest Man in Babylon or the lesson of discipline and frugality from The Millionaire Next Door those lessons are not applied. Whereas, if the average investor spent less than he or she made, invested 15-20% of their gross income in low cost funds into a qualified retirement plan, he or she would have accumulated a tremendous amount of capital to live on throughout retirement. However, more often than not, news and print media panic individuals into buying and selling their investments far too often incurring fees and taxes that erode their investment capital leaving them frustrated and effectively poorer. My simple suggestion is to let time be your ally. If you are in your 20s and you are reading this, good for you. You can literally start a savings discipline that could last the better part of 40 years and the older you will thank the younger you for it, trust me. For those of us that are older, we can still start with the caveat of less time, but hopefully with enough wisdom not to repeat foolish mistakes of the past.
Diversify not just across asset classes, but goals.
If I have mentioned it before, it deserves another mention, I consider The Aspirational Investor by Ashvin Chhabra a must-read for the DIY investor. If you consider yourself smarter than the average bear based on your current portfolio, please do yourself a favor and pick it up. He establishes a good foundation for how investing should be broadened to include our life goals and not just the pursuit of better than market returns. I think he uncovers something key and it leads to my next suggestion. Finding more contentment in your life will be the key to increasing your net worth (and thus your wealth). We all see the struggles that some “wealthy” people have and wonder why their money doesn’t bring more happiness in their life. This is because wealth does not bring happiness to you unless you are already content. Contentment has to do with understanding that what you value and what you believe is worth more than just money. This inevitably leads to finding ways to use your money to promote your values and what you believe in. This is the “quan”, as it were, that Cuba Gooding, Jr. mentions in the movie Jerry Maguire. In the movie, although he chases the big contract, Cuba’s character realizes it means nothing without his values and the people he loves around him to enjoy it ( (his “quan”). This realization hits Tom Cruise’s character also when he realizes that what he values is not the chase of being this hot shot agent, but being there for people. This becomes his source of true contentment. (Pardon my Rotten Tomatoes review!) What’s my point? Understand what you value, then use your money for those things. This will lead to financial contentment, which will inevitably lead to increasing your net worth. All of which have nothing to do with beating the market.