In any single day we are faced with hundreds and hundreds of decisions. Most of them need to be made in the moment. Very few of them carry a long term impact.
Do I buy a half gallon of milk or a full gallon? We leave for vacation in two days. I find myself staring at the milk for more seconds than this decision should take; nevertheless, I need to decide. In the end though, this decision will not impact my future, the well being of my kids, or anything else that I hold dear. I buy the gallon – we like milk and with 8 mouths in my house for breakfast every morning, we will burn through a half gallon for sure just in the cereal!
You may have heard this before, that when it comes to building wealth just a few right decisions over the course of many years of investing are all it takes to be successful in that endeavor. I agree with that statement.
The job of your investor coach–if you’re fortunate enough to have one–is to help you understand if the question or decision you face is one of those right ones or not. Is the question or the information relevant to my success as an investor? Or will it amount to nothing in the grand scheme of things? What impact will a less than “perfect” choice have on my future? Will this question and its answer contribute positively or negatively to my confidence and peace of mind when it comes to my investments?
Part of being a mature investor is learning how to discern the difference between the important and the unimportant.
One (and there are 20 total) of these questions for investors is:
Are you INVESTED in the MARKET?
There are two reasons that this is an important question: the first is easy to pick out and answer, and the second is imbedded in the question a little but is just as important.
The answer that will give you the greatest level of peace of mind with respect to investing is – YES. You will have less peace of mind in the long run if you are not invested in the stock market. We teach an hour class on how to do it and how not to do it, but here’s a short answer: if you are not in the market, then the cost of living will grow as fast if not faster than your nest egg. The stock market has predictably added 6% return OVER the rising cost of living (inflation), so investing in it gives you the return you need to grow your wealth in real terms.
A note of caution: Life insurance and annuity products that offer “guarantees” or “tax benefits” don’t count, even if they say they are indexed to the market or investing in stocks. The insurance company or “the house” always wins. The only thing they really guarantee, if you think about it, is a substandard rate of return.
The second reason this is a good question is more implicit then explicit. You must be INVESTED in the market. Market participants often get speculating confused with INVESTING. You will get no peace of mind from activities that amount to speculation. Hyperactive stock picking and market timing (getting in and out of the market multiple times in a year to try and win some short term profits) are techniques used by money managers all the time. Clear your portfolio of all such activity!
INVEST in the MARKET. Get this one really right and you will go far.