This month’s missive comes from a blog post I read almost two years ago. It’s from Movement Capital’s founder, Adam Collins. It was just so simple and direct, I was immediately jealous. With a seasonally strong period in the markets over the next 30 days (S&P 500 over the last 12 years has been positive 11 of 12 years, with a 3.3% average gain), it’s time to get a quick reminder of the basics, and remember things within our control (not the stock market returns) make all the difference.
– Adam
Sacrifice and Success
Sacrifice is necessary for success in life and investing. Someone researching portfolio strategies or new hot stocks, but refusing to save more than 3% of the income is like spending hours at the gym and then driving over the Krispy Kreme for dinner. You might feel good about doing something but you won’t actually make progress until you make a sacrifice.
Investors have to embrace the fact that they cannot predict the best portfolio for the future. The silver lining is…that’s OK. Recent studies have shown that 10 different strategies earned similar returns over the past four decades. Most importantly, high fees transformed the best performing portfolio into the worst. There are only a few things you can control that have a big impact on your finances.
- If you’re young, how much you save
- If you’re retired, how much you spend
- How you behave when markets panic
- Your allocation between stocks and bonds
- How much you pay in fees
Everything else is a rounding error. The issue is we tend to focus on the rounding errors as it’s easy to get addicted to an endless rabbit hole of new investing ideas. Announcing a new goal, not even achieving it, gives you a dopamine rush. Investors get similar psychological payoff when they constantly buy and sell, even if the activity doesn’t add value.
The truth about investing in the current time period is that there isn’t an easy fix for high stock valuations and low bond yields. No strategy can magically transform your portfolio into a low risk/high return future. So what can you do? Focus on what you can control and don’t get tempted by someone promising they can turn lead into gold.