Up until the last few months, virtually every conversation I have had regarding investing has resulted in pessimism, the general attitude it seems that most people have to stock market investing is based on the 2007 – 2011 Bear Market. I heard too many people argue that it doesn’t make sense to invest in the stock market, because you simply can’t get returns of 8%, 10%, 12%. Now I hear the exact opposite.
With the close of 2013, the S+P 500 returned 30%, The Dow Jones Industrial Average returned 26.5%, many growth funds returned 35% plus returns. Now many investors are leaving the sidelines and want to throw every bit of cash into the market. It’s human nature to want to avoid the bad, and run towards the good, but in investing this is the exact opposite of what should be done.
Remember, “Bears and Bulls both make money, but Pigs get slaughtered.” Chasing yield ensures that you will lose out. The same people who panicked during the recession and sold off shares, and were too timid to invest during the downturn, now think it’s a great time to invest because the market is up. Following performance in this manner will ensure that an investor will ALWAYS buy high and sell low. Can you imagine having a balance of $100,000, selling at $45,000 at the trough of the market, then investing that same $45,000 after sitting on it for 5 years earning no return, at the peak of the market, just waiting for it to go down again?
The turtle always wins, by buying regardless of what the market is doing, emotions are taken out of the equation. An investor will automatically buy more shares when the market is down and fewer shares when it is up (see dollar cost averaging). This is what separates success from failure. This is one of the few arenas where my typical advice of “take action” doesn’t apply. Simply do nothing, and you will build wealth and beat the crowds.