I was reading the White Coat investor’s blog the other day and he had written something that was very profound and it was a good gauge to test what level of investor you are. Here is the quote below
“I have often said that beginning investors have trouble following their plan at market lows, intermediate investors have trouble following their plan at market highs, and experienced investors follow their plan all the time. But that doesn’t mean that those experienced investors like the way it feels to be at market lows or at market highs.”
I recently meet someone who works 3 clerical jobs in order to get by and receives dialysis 3 days a week. She revealed to me that she was investing in cannabis stocks. I felt so bad that someone with such a severe chronic condition is investing in such a volatile sector of the stock market. She could lose it all and in a heartbeat and doesn’t have much to fall back on. I tried to talk her into at least investing in index fund In order to lower her investment risk through diversification and lower cost funds and also about starting an emergency fund, but then I realized that we should all be good stewards of our money and manage our money wisely.
Sometimes it’s hard to do what’s important and what matters as it pertains to investing. It’s not the return on your investments that ultimately matter, but its if you’re able to stay the course in order to get that long term compounding interest that will double and even quadruple your investments every 10 years or so. You see, when it pertains to investing, the proverbial chicken does actually come before the egg; and if you’re after that golden egg then staying the course is how to get your hands on that golden egg laying chicken.
I recently wrote about having a reasonable investing plan and how important it is to have one, but It’s even more important to have an investment plan during times of market volatility than in bull markets. If not you may be investing speculatively and be unaware of it. Benjamin Graham once said The greatest danger investors face is acquiring speculative habits without realizing they have done so. This can happen so easily to many of us. The reasoning is simple. Because you see every battle is won before it’s fought and if you fail to plan then you will essentially plan to fail.
College will likely cost between $60K and 100K a year in the next 20 years. This is based on the projected 3% yearly increase from the current average cost of $25K for public universities and $40K for private universities. The cost would increase to $240k and $400K respectively for a public and private college education. The thought of putting up to $400K in a 529 account when the future is unknown is just too risky for me. This is a huge sacrifice to make.
One of the great Jack Bogle’s most memorable quote is “Buy and hold, but don’t forget the hold”. What is the meaning behind this quote. Lets say you have a stock or ETF that you have bought thereby satisfying the buy part of the equation. You’re now contemplating buying more shares to add to your position of hopefully a total stock market index fund. What Mr. Bogle is saying is that holding is far greater than buying or selling. It doesn’t matter when you buy, but it makes the world of difference if you hold. It doesn’t matter if you buy at the top of the market or the bottom, if you continue to hold through the swings of the market you will come out on top.
Investing in stocks is like farming. There is a time to reap and then there’s a time to sow. It’s a great hobby to partake in if you have patience. That’s why the stock market is not the best place to keep your emergency funds. It’s the same reason why your personal home should not be viewed as an investment. The housing market has ups and downs just like the stock market. When the housing market is hot then that’s the time to sell high and when it’s low that’s the time to buy at a bargain price, but life is not going to wait until the housing market is hot for that promotion to occur that’s going to require you to move across the country or for some tragedy to befall your love ones that will require you to move closer to home help take care of your family.
The reason I hate investing in individual stocks is because at the end of the day there will be winners and there will be losers. All of your individual stock holdings will not win. To win at investing in individual stocks your winners have to outperform your losers. Your winners have to win bigger than your losers losses. At the end of the day they may just end up canceling each other out and that is why you have to cut your losers short and let the winners ride. I always end up wishing I had invested more capital in the winners and less In the losers.
1. Stocks will likely continue to fall for the next 1 month, 3 months, 6 months or 12 months
2. Stocks will likely hit all time highs again in the next 1 year, 3 years, 5 years or 10 years.
3. If you’re a long term investor and don’t need to touch your cash for the next 10+ years then how low the stock market goes and how long it will take before stocks find a bottom doesn’t matter.
4. Stocks will likely continue to trade at a discount relative to all time highs for the next 1-2 years. There is no need to stress if you can’t deploy a massive amount of capital into the market at the current levels. Don’t worry about buying the bottom or catching a falling knife, just continue to invest regularly and dollar cost average.