To achieve the benefits of investing requires sticking with your plan over a long period of time. Tragically, many—if not most—people fail to stay the course. Let’s look at some of the common pitfalls.
The most glaring problem is usually lack of discipline.
When you’re young, and life seems so long, it can be hard to forego current consumption in the interest of rewards that appear so far into the future. We often fail to recognize the slippery slope of saying, “I’ll skip this month’s investment” or “I’ll take out just a bit to pay for that vacation” Five years pass, and you realize that you’ve hardly begun. For more on this, see “What happens when you don’t stay the course” in the blog.
Some less obvious pitfalls include our sensitivity to recent news and events and our tendency to heed the advice of those who appear to be experts.
Over a 20 year period, you are almost guaranteed to experience market bubbles in which speculators are making more money than you. And you’ll experience market crashes in which you’ll question whether you should have ever started investing in the first place.
You will hear experts warning of the pending doom of your asset classes, and talking about exotic investments poised to explode in growth. You will hear experts proposing allocations far better than your own. And they will sound so convincing!
Remember that nobody can beat the market in the long run. Remember that in the long run it’s far better to stick to an allocation, than to have chosen the perfect one. Remember that those attractive performance charts you saw earlier in this guide include several dramatic market crashes over the decades. And remember that the rewards for your long-term discipline can be life changing.