Earlier I said that being a successful investor means at least two things:
- That you get market return, net of reasonable access fees.
- That you get what you expected to get.
If as nn investor you get market returns and you’re emotionally stable along the way, then from an investing standpoint you’ve been successful. To aid my clients in the pursuit of this reality, I have invested heavily in reading, research, and coaching events aimed at helping them with their understanding and expectations. These events and my reading will generally take one of two parallel paths, both of which are important in getting the results we want.
First, we want to understand the stock market and our portfolio.
Secondly, we want to understand why we invest. Getting at the why side of the equation is important from time to time. In that vein, consider two statements that I think are essential to achieving success as an investor.
1. Almost everything in your life is more important that your investment balance.
Save as much as you can. But don’t put your trust in it. Learn how to be a prudent and good steward of your investments. Then live a generous life.
A friend of mine told me an interesting fact about the fortune 400 club in the United States. This is a group of what used to be millionaires (and is now nearly made up entirely of billionaires) who have a really hard time enjoying their wealth. They don’t like to spend their money on things that won’t add to their net worth figures at the end of the year. Once on the 400 list, they want to move up. If they break the top 200, they want to break the top 100. Once in that group, the top 10 is within reach.
This is not a satisfying pursuit. No one reading this post is likely a member of that club today, but the message is still the same. Don’t be afraid of setbacks. Some of these will be market driven (see the next point) and some of them will be relationship driven. One of the best returns you will get on your money will not be financial. Spend your money on what and who you care about. Don’t be wasteful, be wise. Don’t be a spend thrift, making yourself unnecessarily a burden on the state or your loved ones, but don’t be miserly either. Be generous. You will not take any of this with you. Give while you have breath.
2. You absolutely must endure market setbacks if you want to gain market returns.
The two cannot be separated. Indeed they never have been. Every investor who has ever achieved the markets average return over decades has also endured the down years. In fact, it is the down years that give you the positive years.
You might say, “I know, I know, I don’t have the ‘right’ to experience the good years if I don’t endure the negatives.” But that’s only half true. The positive years are a direct result of the negative ones. ROI, return on investment, is a cost of capital story. If you are lending your money to the bank for a year – this is called a 1 year CD – that loan you make has a cost associated with it. This cost is market driven and is very low (today, under 1% apr). If you want a higher return, you must give something. Like what? Well, you could give more time. A five year CD pays over 2%. This return is better than the 1 year CD. But then you can’t get your money for 5 years without paying a penalty. See how that works? What else could you give? Well, you could put $10,000 into starting your own business. If you work hard and you succeed, you might see a 20% return or greater on your investment. This is far from the passive return of CD’s but 20% is a much higher reward as well. There is no guarantee that your business won’t fail. You could lose all of your money – indeed, many hopeful entrepreneurs have.
And then there’s the way of harnessing the entrepreneurial benefits without all the risk and headache. The stock market is the best passive wealth creation tool mankind has ever had. Learn how to harness it. Learn that it is not perfectly tame. Learn that in the end the down years give investors the right to enjoy that nice level of return.