Why we ignore the stock market and you should too
Obviously, the stock market is about to do terrible things. But I don’t care.
Monitoring the market is a useless waste of time, energy and brainpower. There is no benefit at all, so when the rest of the world is worried about market conspiracies, I looked the other way.
I cannot tell you how to optimize investment or beat the market or choose popular funds… why not? Because I don’t know, and I can’t tell other people that know.
No one can predict what will happen in the market, and there is no secret formula to overcome it.
What you can do
There are two reliable ways to enhance your investment portfolio:
1) Increase your savings and 2) Increase your income.
I realize that this is more ridiculous than playing a day trader on your mobile phone in your cubicle, but these are the only things that can be 100% guaranteed to be effective.
My attitude towards everything in life is to control what I can control. I flatly ignore what I can’t. Simply let it go.
Let us be clear here, I am not always successful in this regard, which is exactly what I aspire to do. The stock market is firmly in an area beyond my control, so I don’t pay attention to it. Ignore it completely.
I used to spend a lot of time and energy trying to change the course of events beyond my control, which worked 0% of the time. But in the event of things, it affected my portfolio… negatively.
if you on the other hand increase your savings rate, for example through strict and frugal actions, then you will have more money to invest.
If you increase your income, you will have more money to save.
My friends, these are variables that you can completely control. On the other hand, the market fall is completely beyond our control. Since investment is a situation where your income is only as substantial as your contribution, please focus your energy on increasing your contribution. Put it on the market and consider compound interest, our dear old friend.
Compound interest is the interest added to the principal so that your interest will accrue interest.
This is something sweet, sweet. Very simple, making money is the function of making more money. The more money you invest and the longer the investment period, the more money you will make from the investment. This is an incredibly impressive mathematical equation: money + time spent = more money. We have determined that my math is very poor, right? But even if I can understand this, you can too!
Want to know where to start setting aside more funds for your own compound interest magic? Start by tracking your monthly expenses and determine where you can cut corners (I bet you can find something that can save you more).
I use Personal Capital for this task, which has the huge advantage of being free and easy to use.
You can’t touch this Stock! (AKA keep investing)
This is another variable you can absolutely control: the duration of the investment. The longer it stays in the market, the better the effect will be. Entering and exiting the market when you feel a little panic is a good way to ensure that you will never profit from your investment. Money has no emotions. You don’t care whether the market goes up or down. Don’t impose your people’s feelings on it. Instead, rely on the long-term benefits of market returns.
I bought our first stock in 2019, when everyone else was fleeing the scene, and since then we have let them travel. In addition, part of each of my salary will be automatically used for investing. One of the keys to staying sane in the market is to invest regularly and keep investing. If you try to choose the best time to start investing, you will go crazy, just as brushing your teeth every day is something you should do regularly, without fear or drama (unless you have some strange dramatic oral hygiene habits.)
To get those glorious compound interest returns, you need to put aside the time part of the equation (remember: money + time invested = more money). Investment is a long-term proposition, not something to be tracked. Or speculate every day or even every year.
I believe that our investments are part of our long-term plan, and we do not plan to withdraw them in the short term. Remember, this long-term approach is why you don’t want to invest in an emergency fund. If there is an unforeseen demand for your funds, it is important to have cash reserves on hand. Therefore, when you want to put all possible capital into your investment, don’t put the last cent in it. The traditional view suggests keeping at least three to six months of living expenses in cash (I prefer six months because I am a bit conservative, but many people are satisfied with the value of three months).
Here is a quick (and simple/boring) roundup of how I prefer to invest.
We have two stock portfolios: our taxable investment account and my pension. All our taxable accounts are invested in low-fee market-wide index funds (FSTVX or VTI). Our overall investment portfolio is weighted by 90% of market index funds and 10% of bonds. Bonds hold our 401K to maximize tax efficiency. my pension is low-fee index funds because I firmly believe in avoiding fees as much as possible. Once a year, we will spend 5 minutes rebalancing our portfolio to match our desired asset allocation. The most important aspect of managing stocks is to choose low-fee index funds, and then resist the urge to adjust, adjust, or do anything with them instead of investing more money.
This is the fourth variable in which you can exercise all-encompassing power: choose low-cost funds. This simple decision will save you a lot of cash in your investment career.
The art of losing money
Did my portfolio fall heavily? Oh sure. But I still have other things to worry about in life. What the market is doing/not doing hasn’t risen to the point where I even have slight heartburn. Although some people like/hate seeing the market, I prefer to ignore it altogether. Focusing on it will not make things better or easier. It does not increase the amount in my account, and I tend to think it is harmful to my health (you know, stress, etc.). It would be much better if you focused on reducing your grocery budget; it is now an easier to achieve and practicable goal that will yield real benefits. Thinking about the stock market is like guessing what is going on in the thrift hound’s brain-it is a futile effort that will surely leave you confused and helpless. Instead, turn your attention to more productive efforts.