We have already talked about asset allocation, today we will see how to remain faithful to it, even in the worst moments.
We have already seen investor biases and in this case the disposition effect helps us maintain our position even at a loss, waiting for it to turn positive again. Paradoxically, the problem comes when the markets are good.
We always want to earn more and while looking for the right investment we remain anchored to past performance. Furthermore, by moving our assets, we lose money in taxes and fees. Not so good.
Let’s see what to avoid doing to feel good while our money works for us:
- Don’t always look at your balance. If the economy is going bad you don’t find out in a day and if it’s going well there is nothing to check. I recommend looking once every 2 weeks when it’s good and only if there are serious reasons to change allocation if we are in a recession.
- Don’t think about beating the market. You are neither smarter nor more knowledgeable than the sharks on Wall Street. If you want higher returns, you will need to take higher risks. Leveraged products, individual shares, commodities, rare or non-traditional investments such as watches, works of art, wines or others. This is perfect for losing money if you are not an expert. I too started “out of curiosity” to investigate other investments, you’re smarter than me.
- Keep playing the dead investor. Low trading activity, low taxes, avoid beating the market and only adjust in case of major macroeconomic changes. Keep saving and investing to grow your wealth.
- See where you started and where you arrived.
Do like me, start a blog and show everyone how rich you are. Create yourself an excel file and keep track of where you are each month or year. You understand how much you lack to be financially independent. Seeing the results of your efforts will help give you the satisfaction and energy to continue.
We have seen how to stay faithful to our asset allocation. I advise you to come back and read the above rules over the years.
This is the only motivational and summary post of the 101 section of the blog. The next post will be on rebalancing. Wrapping up the great theory of personal investment. It will be updated only when I find really important topics to add to the blog.
For other short pills there will be my opinions.
P.S. no tips today