Warren Buffett said, “Investing is simple, but not easy.” Sounds like a contradiction. But in real life simplicity has little to do with ease. Take losing weight. Very simple. Burn more calories than you take in. Easy, right?
The path to our long-term goals is often filled with conflicting short-term desires. Investors want the long-term returns, and want safety and security. They need to generate a certain amount of income, but can’t take another 2008/2009. And many investors lack the patience and psychological fortitude to stick with their plan during times of losses and uncertainty.
Investors have the best of intentions, but sometimes we make decisions to satisfy our emotional urges. That can make us feel good at the time, but often comes at a significant long-term cost.
The Cost of Following Urges
JP Morgan reports that over the past 20 years, six of the ten best days occurred within two weeks of the ten worst days. So even a temporary lapse in judgement can be very costly.
Take a look at the differences in returns from missing just a few of the best days in the S&P 500 for the time period January 1998 – December 2017. (1)
Fully Invested Entire Time 7.2%
Missed 10 Best Days 3.5%
Missed 20 Best Days 1.1%
Missed 30 Best Days -0.9%
There is a cost of feeling good or comfortable. Being uncomfortable at times is the price to pay to earn an above average return. And that is one of the most important reasons I’m here. We cannot control the market; we cannot predict it. But we can counsel together and ensure the best decisions are made in line with your long-term goals.
1. JP Morgan, Guide to Retirement. 2Q 2018. Page 40.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.
(c) 2018 The Behavioral Finance Network. Used with permission.