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Simple, Yet Difficult: The Challenges of Investing

Investing Baron Team

A 30-second read by the Baron Team:  Warren Buffett said, “Investing is simple, but not easy.” You would think that if something were simple that it would be easy. Not so. 

Take losing weight. Burn more calories than you take in. The surefire way to invest is to buy low and sell high. Both are very simple, but extremely difficult.  

The Conflict

The reason these are so difficult is because our goals tend to be realized over a long period of time, while we are tempted to pursue pleasure and comfort today. 

A slice of chocolate cake now sounds a lot better than forgoing that pleasure for losing a few pounds in several months.  Appeasing our emotions today by ““adjusting” our portfolio based on emotions, and not a strategic plan, may provide a sense of instant emotional relief, but often results in a long-term cost.

Market Watching

Watching the markets and/or frequent evaluation of portfolio performance may cause you to take harmful actions with your investments. This is because, in the short term, security returns can fluctuate wildly causing negative emotions…even though the value of the underlying companies seldom changes. Think Dec 2018 and Jan 2019.

Be Prepared for Fluctuations by Having a Plan

Fluctuation is a normal part of the market and should be expected.  The key to success is to have a plan ahead of time that outlines a risk-appropriate strategy and actions to take when volatility occurs.  That way the actions taken are predetermined (think rebalancing) and will not be tied to the emotions one may be feeling during market swings.

Over the past 38 years, the S&P 500 has experienced intra-year losses of greater than 10% more than half the time. But don’t fret. Even in those volatile years, the S&P 500 still generated positive annual returns 68% of the time.1  If we trade based on emotions caused from fluctuations, we may be leaving a lot of future return on the table.

If you want to make something that seems simple less difficult, work with a comprehensive wealth management firm, like Baron Financial Group.  We can help create a risk-appropriate strategy and investing rules, so that you know ahead of time what strategy will be in place when market fluctuations occur.

  1. JP Morgan, Guide to Retirement. Dec 31, 2018

To learn more about investing, contact the Baron Financial Group Team.

©2019 The Behavioral Finance Network. Used with permission.