If you want drama in your life, watch Vanderpump Rules. Investing should be less like Tom Sandoval and more like Marcus Aurelius..stability, detachment, and a sorted variety of diversified assets.
You know, we’ve all been there. We have clients constantly hit us up with questions about the stock market, whether they’re sweating over a recent dip or thinking about diving into the latest hot investment (TESLA, SNAP, NVIDIA, bitcoin…) But here’s the deal – building lasting wealth isn’t about riding the rollercoaster of daily stock market drama. Nope, it’s about diversifying your investments and then, well, kinda ignoring them.
Believe it or not, there’s a finance urban legend that states the best-performing investors were the ones who are dead. Despite being an urban legend, the sentiment rings true. Investors who leave their accounts alone outperform those who tinker. Mind-blowing, right? And here are three more reasons why you shouldn’t lose sleep over your portfolio’s day-to-day or even year-to-year performance:
1. Your Gut Feelings Are (Mostly) Wrong
When the market takes a dive harder than Jake Paul against a real boxer, our natural instinct is to freak out and sell off our investments to cut our losses. But if you’re in your 20s or 30s, that’s actually the opposite of what you should be doing. History tells us you’re better off buying more when the market’s down. A study found that the shorter you hold a stock, the more likely you are to lose money. In a nutshell, messing with your investments can do more harm than good
Look at Warren Buffett, the big shot in the investing world, the Oracle of Omaha. In 2008, he made a million-dollar bet with a hedge fund called Protégé Partners.
He said, “I’m gonna invest in an index fund and just leave it there for 10 years.” He bet that he’d make more than the savviest professional investor who tinkered with their investments. Guess what? He won, big time. His investment, the Vanguard 500 Index Fund Admiral Shares, raked in an average of 7.1% annually, while Protégé Partners’ investments only managed a puny 2.2%.
2. Daily Market Swings Are No Biggie
Now, here’s the scoop – if you’re investing for short-term goals, you might as well hit the casino. Investing should be all about mid- to long-term goals, the stuff that’s 3 years or more down the road. We’re talking retirement, your kid’s college fund, or that dreamy vacation home. But let’s be clear, it doesn’t include that extravagant yacht week in Monaco next summer.
For goals that are less than 3 years away, simply set up automatic contributions to a high-yield savings account. Why? Because investing takes time to work its magic. And, let me tell you, the real beauty of compounding interest comes when you give it some time to do its thing. So, don’t rush it!
*For extra savings, make sure that the high-interest savings fund is in a tax-sheltered environment.
Messing with your investments in the short term is not only inefficient but also risky. Markets can be as unpredictable as Christopher Nolan’s Memento. If you need your money a year from now, and the market is in the dumps when you wanna cash out, well, that’s a tough break. Your money isn’t ready, and you’re out of time to let it bounce back. That’s where longer-term goals give you a cushion. You’ve got the flexibility to delay your plans, tap into other non-market assets, or just push your retirement plans a bit further out. It gives your investments a chance to recover and come back stronger than Rocky in Rocky 2.
3. Your Portfolio Shouldn’t Mirror the Market
Don’t get too caught up in what “the market” is doing, whether it’s the S&P 500 or the Dow Jones Industrial Average. Those benchmarks are like checking your abs after doing a thousand crunches at the gym. The market performance is just a tiny part of the bigger financial picture. And stressing about it? Well, it’s pretty much a waste of your precious time.
Your investment portfolio should be a diverse mix of assets – not just stocks from those popular indexes but also bonds, commodities, and real estate. Think of it like your workout at the gym – you don’t just only hit bench press (read that again); you put effort into all the exercises because they’re all essential to keeping you in tip-top shape.
Remember, market performance is just one slice of the pie. So, save yourself some gray hairs and stop fretting about it. And hey, if you’re looking for a financial game plan, give ARC Wealth a shot. We can help you figure out how to go from where you are to where you wanna be in the smartest way possible, and with less grey hair.