Investing is easy. In fact, it is so easy that very few “professionals” can do it successfully. Confused? Let me explain. It is a mathematical and historical fact that if a person were to have simply purchased a fund representing the S&P 500, along with a fund representing the aggregate bonds issued by the U.S. government and large U.S. corporations, and have held those positions over any past 20-year period, while re-investing the dividends and interest along the way – that person would have tripled or quadrupled their money (depending of course on the amount of money put into each investment).
It is that easy. If you add to your purchases along the way you could do even better! Don’t believe me? Look it up. Over any rolling twenty-year period, the U.S. stock market has averaged just under 7.00% annually. The bond market has not done quite as well but it has an uncanny knack of doing its best when the stock market does poorly. You don’t even need to know why, but it involves inflation, interest rates and economic growth. All you need to know is that your money will double every ten to twelve years if history is any indication.
In my opinion, the reason that very few can invest successfully is a matter of the following common themes:
- People don’t believe it will work.
- People don’t have the discipline to plan twenty years ahead.
- People don’t have the patience to stick with the investment during the years when markets turn south.
- People spend more than they earn, which leaves them without money to invest.
- People think that they can somehow do it better and become lost or overwhelmed in the nuances of economics, corporate finance, currencies, technical indicators of market prices, arbitrage, options. This is where the professionals come in.
The latter of these is a real problem that affects a lot of seasoned investors, professional advisors and their millions of clients. People tend to want to know all the ins and outs of everything. They want to figure it out themselves. It is this over analysis that I believe causes much of the losses we see incurred by market participants. Through the constant search for the “secret” the investor never sticks to a proven plan. He or she continues to search for the metaphorical rainbow that must be out there. The investor has missed the forest in search of the trees.
There is one final factor that must be stated as it relates to the professional advisor or broker. The professional must justify their worth. If they didn’t somehow do it better, why would a client ever pay them? Why did they go to school for so long? And why did they pass all those tests evidencing their deep knowledge of finance and markets? This question has become more and more relevant as information has become readily available to all people. All investors now have easy access to all types of trading platforms, investment products, mutual funds and exchange traded funds. It is no longer a secret industry with very few controlling the game. The cat is out of the bag and the truth has come flying out with it. This new reality causes many professionals to lose money as they scramble to stay relevant.
Anyone has the potential to invest successfully. Have a plan that you can stick to and don’t overthink it. Get started today!
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