Calling someone who trades actively in the market an investor is like calling someone who repeating engages in one night stands a romantic.
- Warren Buffett -
If only the financial industry would follow the advice of Mr. Buffett. The world would be a better place.
But Wall Street does not exist to make smarter investors, it exists to make profits. (which can coincidentally happen to be at the expense of investors).
But that's a discussion for another post. Let's look at his simple concept: invest for the long term.
Why The Saying Even Exists
Does investing for the long term work?
Quite simply the stock market has created wealth for long term investors far superior to bonds and cash.
Granted, it's oversimplified to show you 90 years of data and a relatively smooth line. Those slight peaks and valleys look marginal over 90 years, but get magnified significantly when looking at only 10-20 years.
However using history as a guide, the longer your time frame, the smoother your line (could) get.
IT CAN'T BE THAT EASY
There is one problem: yourself (and me, and most everyone else that invests).
The problem is human emotions. A lot of significantly bad, terrifying, and negative headlines will surface over the long term.
Each headline will bring about fear which ultimately may make you stop investing.
HOW TO CONTROL YOUR EMOTIONS
I've had discussions about investing for the long term with hundreds of clients. I've found only one solution that actually moves the dial.
Education brings about understanding which at least helps rationalized your decision to stand pat in the face of fear.
It all starts with baby steps. Check out the story below about how a family followed two time-tested strategies to build their wealth. Save early and often and invest for the long term.
Derive Wealth is an independent, 100% fee-only financial planning firm located in Pasadena, CA. We specialize in creating personal financial plans designed to organize your life, get you to your goals, and take the worry out of your money. We don't sell products and don't work on commissions. Instead, we provide financial advice you can believe in.