We all love a sale! Black Friday, Takealot’s daily specials, and Wednesday night half-price pizza; all difficult to resist and we quickly learn when these sales occur to take advantage of them. It’s human nature to buy something when we know we can get it below its real market value.
Unfortunately for most people, the same behaviour does not get followed when it comes to long-term investing.
We get told that investing is a long-term strategy, and all the research confirms that staying in the market over time gives us inflation-beating (real) returns, yet it is the most difficult thing to do.
Why?
I can think of 3 simple reasons why doing the obvious is so difficult.
- Financial porn:
We are bombarded daily with prophets of doom, people who claim to be market experts on every social media platform. Saturdays braai after the rugby is also seldom helpful when it comes to investment expertise. This noise is deafening and finds us naturally, we don’t even need to go look for it. Bad and sensational news sells but is seldom the truth. Ignore it.
- Fear:
Studies show that we value a loss 2.3 times more than the same gain. A 20% drop in the market causes much more panic than a 20% gain causes in happiness. Emotions are real, instinctive, and very difficult to control but do not work well with investment decisions. By understanding our emotions, we can make better decisions.
- No long-term investment strategy:
When investing one needs to have a long-term investment strategy that speaks to your personal Lifestyle plan. Many of us simply invest in the “best” fund, with no real long-term outcome in mind. Get specific about what your money needs to do for you.
We cannot predict what the markets will do in the next days, weeks, months, or years but history tells us that in the long-term it is the only place to get inflation beating (real) returns. We also cannot time the market however what is very apparent is that there is currently a massive sale on. If we are not going to buy then at least don’t sell.
Dirk Groeneveld, Certified Financial Planner
t. 083 261 9287
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