Some reasons why some never accumulate substantial assets and how not to be one of them.

If you don’t have a reasonable savings and investment plan, you’re unlikely ever to reach a goal. And, if you do have a good plan, or the lack the discipline to stick to a good long term plan, again you won’t get to that goal.

That is true whether the goal is financial independence or getting that first home or a higher education for a son or daughter or almost anything that requires substantial funds.

Where to Go and How to Get There

Let’s us repeat the advice: You need a plan to acquire large assets. By the way, has consistently argued that dollar cost averaging for those investing over the long term. We advocate putting a set amount into low cost index funds every month especially in bad times. The allocation, depending on the person and the years of investing, can possibly be 70 percent stocks and thirty percent bonds.

Those who are aggressive investors and have a lot of time can go a bit higher with stocks. Those less aggressive should do less in stocks and more in bonds. A possibly ten percent cash component could also be included.

But the investment plan doesn’t have to be huge document. It can be one or two pages. It can even be mental if you can easily state it from memory and will stick to it. The most important things are that you need the discipline and guts to stick with it through difficult times. And any wise person, especially the ones who have succeeded, will agree that ultimate success in almost anything, but especially investing, means surviving some rocky times.

The reason why some people never get far down the road to financial independence and why many older people end up with little or nothing in assets (the latter is illustrated by the millions of poor senior Americans who live exclusively on their paltry Social Security income) was recently illustrated by a volatile stock market.

All Abroad the Roller Coaster!

The last month of 2018 was a train wreck. It was the worst month in the stock market since the Great Depression. It ended a difficult year—2018 was the first down year after about a decade of wonderful markets; markets in which one had to have a perverse talent to have lost money.

At the end of 2018, some of the less experienced investors, who had enjoyed a long-term bull market, didn’t know how to cope with their first substantial reverses. They were shelled shocked and panicked. They short-circuited long term investing plans and sold everything. By the time many of them calmed down what happened?

In the first month of this 2019, you guessed it, we had one of the best Januaries in investment history. Markets snapped back. I have been investing on a regular basis for close to thirty years and these events reminded me of things I had seen many times before and will probably see again.

The Investment Puzzle

It is an anomaly of investing that I have noticed for years and just witnessed again. Many people had taken their losses at the end of December 2018 just in time to miss all the gains of the next month. January 2019 turned out to be a great month in the stock market.

Indeed, it reminded me of 2008 and 2009. In 2008, markets were generally down by some 40 percent; one of the worst years in history. However, the following year markets were up by some 25 percent. However, many people who were beat up in 2008 never stuck around to enjoy the good times of the next year.

In the case of investors with a long-time frame, especially people just starting out—people such as myself and my wife, the ever-comely Suzanne Hall who had begun investing at the end of the 1980s—it was the wrong time to get out.

It is an investing anomaly that has, unfortunately, happened to many investors in several ways. For instance, Dalbar Associates, in a famous study, found that over 30 years between 1983-2013 the S&P 500 returned 11.11 percent, a wonderful number. However, the average investor only got a piddly 3.69 percent, a disparity that Dalbar’s president Lou Harvey called “astounding.”

What happened?

Why Didn’t I Get Eleven Percent?

Panicky investors jump in and out of stocks as markets went up and down, instead of sticking to a long-term plan. The effective plan means regular investing, in good times and bad, over a long period; say 20 or 30 years so the investor has maximum exposure to the markets, getting the best chance to participate in bull markets but accepting that he or she will be there when markets sometimes tank.

(By the way, for people at the other side, the older investor who already has a substantial amount, sometimes disengaging slowly, letting your investments slowly run down over a period of ten or twenty years can also make sense. Even though I am old, 66, I still have a percentage of assets in stocks, although a lot less than 10 years ago when I had a longer investment horizon. The reason is because people live longer today and I still may need to have some growth in my portfolio because I might live another twenty or possibly thirty years).

Dalbar’s Harvey is worried that many investors are easily spooked, who jump in and out of market, don’t understand the long-term investment process. He warns that “Attempts to correct irrational behavior through education have proven to be futile.”

What Is the Answer?

If you have a substantial number of years, say 10 or more, stop trying to figure out the market. Don’t try to pick lows and highs. Don’t try to time the market. In the vast majority of cases, it is a fool’s errand.

Instead just invest on a regular basis through good times and bad. This advice is very effective for young people; for people who are starting out and plan to invest for 20 to 40 years. If you’re investing on a long-term basis, losses in the long term are not going to hurt you; they will help you.


Lose Money and Be Happy?

Yes, the previous paragraph is right. Since you’re buying on a long-term basis, shares you buy at the beginning of a long investment period will be depressed.

Sure, it looks bad that the value of the investment goes down. But the good news is that you will be getting more shares. You will be buying more shares because prices are down. Many of today’s dogs will be tomorrow’s champs when markets recover over a long period. You will be rewarded for not panicking and jumping out at the first sign trouble. Still, a lot of people do the latter.

The long term, possibly twenty years or more, can be the best friend of the investor who is fearful of having to survive bad times. And it is inevitable that even the average long-term investor, no matter how successful, will live through some bear markets. In baseball terms, consider this: the Boston Red Sox had a dream last year. They won the World Series and they won an incredible 108 games in the regular. But the latter still meant they lost 54 games. You usually have to experience some bad to achieve overall good, in baseball, life and investing.

Bet on the Averages

But, over the long term, the stock market tends to go up two years out of three; not every three years but over the long term. The stock market, going back about a century, tends to return about nine and a half percent a year, not every year but over the long term.

Still, to smooth out those short-term bumps, it is sensible to have some bonds in the portfolio. Long term bonds are beat by stocks. However, there are still short-term periods in which bonds beat stocks and even a few periods when cash is the best performing asset.

So, if you have a queasy stomach, or if you are investing for the short term—ten years of less—it makes sense to consider adding bonds and cash to a portfolio. I think some bonds even make sense for the long-term investor but it depends on the investor’s temperament. Only you, possibly working with an advisor, can know how you will react to sudden losses.

The Benefits of the Long-Distance Investor

There is one other benefit for the long-distance investor: Compounding. The longer you invest, the better the numbers tend to be; the more interest starts to generate interest.

So, commit to a long-term plan. And in investing, as in say relationships, expect some hard times. Be ready to live through bad times by sticking to a good plan. Steady as she goes is the way most people succeed in investing and in life.

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post.

    1 Response to "Here’s Why You Missed the Good Life"

    • Gary Marshall

      Greetings Mr. Bresiger,

      Some 2 years ago, I sent out an Economics Challenge to the Mises Organization offering $10,000 for the flaw in a simple proof for the idea that it makes no difference if a community has its government tax or borrow from resident citizens to fund public expenditures. But there are huge costs in Taxation, in waste and in its deterrent effect, that disappear with Borrowing. So a community is always better off having its government borrow than tax.

      The video is here:

      You may also view it on my $10,000 Public Finance Challenge Page here:

      Why is this so?

      There is an errant premise in Public Finance Theory. Everyone knows it, but fails to act on it.

      Let us say the US Govt. spends $4T per year. $3T taxed and $1T borrowed. All would say the deficit is $1T. Wrong!

      How much did the Govt. contribute to its expenditures? The answer is nothing. The government has no money, no assets, no income. Thus, the true deficit is every dime spent. Total US public debt, unaccounted though it is, is every dime spent since the US Gov’t’s inception.

      Taxpayers, or rather resident citizens, or rather the combined property, assets and incomes of resident citizens, what I call That Which Funds Government (TWFG), funds government – all of it. To answer the big questions in Public Finance, one must visualize the box of TWFG and study it rather than the finances of an entity that doesn’t have any money. In the video I have done that. No difference between taxing and borrowing. A sum, say $50, leaves TWFG whether taxed or borrowed. The 3 operations in borrowing: adding a public debt, adding interest to it and repaying the public debt do not alter in any way the aggregates of assets and liabilities of TWFG. Thus, a community should have its govt. always borrow and never tax because of Taxation’s inherent costs.

      A graduate student presented a refutation of my proposal in the form of a variation of Barro’s Ricardian Equivalance Theorem.

      I answered with my own refutation of Barro’s conclusion.

      You may find that here on my blog page:

      In the movie, the Big Short, about 20 people, many outsiders, saw the approaching financial calamity in housing bonds in 2007 whilst the many thousands working directly in that business on Wall Street did not. Why was that?

      There is a lot of discarded public debt in the world that would become very valuable if just one municipality, state, province, or nation in the world were to follow the prescription.

      Gary Marshall

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