Financial markets are inherently manic depressive. Euphoric one moment and downright despondent the very next is in their nature.
But we must condition ourselves to ignore these short-term machinations of the markets because we can. Because we must. That’s the only way we come out winners at the other end.
But we are also humans. We forget. So a collection of some investing and life maxims that you should staple to your fridge like today and revisit them from time to time.
Day to day, month to month or even year to year volatility should have zero impact on the long-range objectives of a well-crafted financial plan.
Permanent capital loss is the biggest of all risks. Avoiding that at all costs should be fundamental to the way your plan should be structured.
Volatility is part and parcel of the investing process. A more volatile investment will almost always yield a higher expected return. Low risk, high reward situations don’t exist much, especially in the money world.
Mind the sentiment. Risk is the highest when complacency is at the peak. The more comfortable you are investing in something, the more you should check on the prevailing sentiment. If your comfort level and the prevailing sentiment align perfectly, watch out.
Have sufficient emergency reserves to ensure you’re never forced to sell your investments at inopportune times.
Check your investment accounts as infrequently as it takes to avoid making rash decisions. Maybe once each month and even that is an overkill. I know that’s anathema in this day and age of instant everything but trust me, do as what John Bogle says, “Try and avoid the worst hazards of behavioral investing. Follow the basic rule that I follow: Don’t peek. Don’t open your statements every quarter. Put in money regularly, and when you retire 40 or 50 years later, and open the statement for the first time, have a cardiologist on standby because you run the high risk of heart failure upon finding out how much money you have accumulated.”
Invest in a diverse portfolio of global stocks and bonds with the intent of staying invested for decades. Don’t market time and never, ever, never, ever be completely in or out of the markets, ever.
Dollar cost average your entire life and you won’t care what the markets do from day to day.
Try to max out all your tax-deferred and tax-free accounts.
Make sure your material aspirations grow slower than your income. It’s the only way to accumulate wealth.
Pay no attention to the Joneses. They are crying inside.
Avoid debt even if you can afford it. It takes away options which is your most valuable asset.
Save enough of your income so that you can retire at an age your dad started complaining about his back hurting. You won’t want to work after that.
Your ability to earn income is the biggest asset you have, especially in your wealth accumulation years. Nurture it and look at every opportunity to grow that income.
The goal of proper investment planning isn’t necessarily more money. The main goal is being able to live life on your own terms.
And last, accept the fact that the future will play out differently than you think it will but there is no reason not to plan for it.
Cover image credit – Matheus Bertelli, Pexels