Broker Check

The Great Taboo. . .

April 02, 2024

We Financial Advisors are a fickle bunch. We have different ideas and strategies for creating wealth. There is no universal path to wealth creation. What strategies may work for one may not necessarily work for another. It's situationally dependent. 

However, you're not likely to hear or read anything from your financial advisor about habits that destroy wealth. It's almost taboo to talk about such habits. Everywhere you look, from the mainstream media to your family, friends, and neighbors, the focus is always on what habits might work (i.e., cut back on Starbucks, travel less, save more, cut the cable).  

While those are all tangible/actionable items and are important, what if you focus on the greatest taboo that is hardly ever mentioned in the press or by your friends, family, neighbors, and most financial advisors?  

What is this great taboo I speak of? Your investing behavior. 

Well, as you know, my dear loyal reader of this little blog, I spend much of my writing focusing on avoiding the destructive wealth behavior that impacts so many investors. Most investors are too busy focusing on beating this index or that index while turning a blind eye to their own destructive behavior.  

To wit, there is not, and never will be, a greater destroyer of invested wealth than your own behavior. Two of the more egregious behaviors are mindless panic and performance chasing (which is a very close second).  

Like it or not, I know it's taboo even to mention it, but the dominant determinant of real-life, long-term investment outcomes is not investment performance; it's investor behavior. 

And you're not likely to hear that from any of your friends, family, or neighbors, much less the mainstream media. They encourage just the exact opposite:  performance chasing and mindless panic.  

Equity investing has never been, nor will ever be, a linear Picasso. It just doesn't work that way. The road to average returns is a bumpy, sometimes ugly, nail-biting ride that requires patience, diligence, and careful planning:

Just looking at this chart, you see that investors have been within two percentage points of the market's long-term average in only six years out of the last 97. As you can see, it's been a bumpy road to normal for investors.  

This is why so many charts that you've seen (and which, if you read my PCN, you're familiar with) have emphasized the difference between invest(OR) and invest(MENT) return.  

What's worse than mindless panic or chasing performance? Doing it several times over the course of your investing life! 

Imagine panicking and selling out in March of 2009 after seeing the S&P 500 index lose more than half its value and close at a multi-decade low, only to see it go on in the next thirteen years, climbing seven times higher than that fateful March! 

And, I do not mean to kick your dog when you're down, but you reached that level AFTER going through ANOTHER rip-your-face-off pandemic panic sale that saw your value get chopped by one-third.   

My personal feeling is that knowing WHAT NOT TO DO is just as important as knowing WHAT TO DO. Understanding both can ultimately put you and your wealth in a peaceful state of mind.  

Stay the course, my friends.