“The only way to avoid mistakes is not to invest – which is the biggest mistake of all.”
John Templeton
Almost everyone would like to achieve financial security. So how does a person accomplish that? The most proven and assured way of achieving the end goal is through investing. There are however some pitfalls that can come from investing. This article will discuss some of the pitfalls that can happen when investing and some suggestions as to how to avoid those pitfalls.
Time in the market is more important than timing the market!
The secret to long-term wealth is time in the market. Investors should have a financial plan. When committing to time in the market, an investor is able to take the emotion out of the day to day fluctuations of the market. In the world of investing, emotion is the enemy. The market naturally has ebbs and flows – bear markets (when the market is losing over a period of time) and bull markets (when the same market is gaining over a period of time). Generally speaking, the market goes UP over the long term. Warren Buffett, one of the best known and most successful investors on the planet had only two rules for investing: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget rule No. 1.” By waiting for steady growth over time, smart investors are able to achieve their long-term financial goals that are outlined in a financial plan.
Don’t panic!
John Templeton once said, “Don’t panic. The time to sell is before the crash, not after. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” So how do you know the difference? Quite frankly, nobody knows for certain when the market will turn and go the other direction for an extended period of time. Following the advice of the book “The Wealthy Barber”, which suggests investing on a continual basis when you have money available, is likely to be more successful than trying to guess when to jump in. “You only have to do a few things right so long as you don’t do too many things wrong.” (Warren Buffett)
If you’re not investing, you’re doing it wrong!
Investing and trading are markedly different ideas. The two ideas have entirely different goals. While trading is taking on a measured risk for a defined period of time (usually what we would consider a short period of time), investing is about minimizing risk over the longer term to grow your wealth. General consensus is that the risk in trading is multiplied substantially when compared to investing. Warren Buffett once said, “Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” Today some people hold cash and feel very comfortable in doing so, but they shouldn’t. Holding cash is a terrible choice for a long- term asset as it generates no growth; when considering the effect of inflation, it actually depreciates in value with respect to future buying power.
So, what’s the answer?
There has never been a better time for financial advice. For anyone weighing the pros and cons of time in the market verses timing the market, remember that time in the market generally offers a better outcome even if it feels overwhelming with market volatility and uncertainty. By investing with a long-term strategy and a holistic game plan that involves a reliable financial planner, you can more easily handle the perceived risks with respect to other situations in your life. A reliable financial planner can also keep you on track by reviewing your goals and your defined financial plan. Bill Gates referenced the fact that he always tried to hire people who were smarter than him. If that strategy is good enough for billionaire Bill Gates, shouldn’t we all try to think that same way if we want to be successful? “Risk comes from not knowing what you are doing.” (Warren Buffett)
The ultimate solution!!
A reliable financial advisor can play an important role in your investment journey, no matter what stage you are at in your life. They can offer you multiple financial investment options to suit your unique personality and your ability to handle different levels of risk and can also help you develop your financial plan, and then they will help you review it at different stages and make any necessary adjustments that are needed. It has been noted that people who work with a financial advisor generate substantially more wealth (almost 4 times more over a 15 year period) than people who try to go it alone. A reliable financial advisor can offer you suggestions that will generate better savings and investment habits; they are your financial partner and their professional advice will play a key role in helping you with saving and investing for success. A reliable financial advisor offers you the ability to get advice on saving, investing, tax planning, investment management, retirement and estate planning, and more. (The value of working with a financial advisor, Global Asset Management, 2020, Accessed December 11, 2020).
