If someone were to ask you in 2046 how you should have invested your money in 2016 what would you say? I think this is a really helpful question.
I’ve been thinking about this a lot lately and it has really been a helpful thought experiment. Asking yourself this questions leads to other questions which help focus your goals.
For instance, how old will you be in 2046 and what will your lifestyle goals be at that time? What kinds of things will be truly important to you then? Being able to help your children and grandchildren? Being financially independent? Giving to a non-profit that is special to you? Creating an endowment or a scholarship in honor of someone you respect? Or how about creating a trust for your grandchildren to fund their education or for them to purchase a house?
Being a patient investor is very difficult. There always seems to be someone who pops into our life that was able to seemingly quickly and easily obtain some financial goal.
As an aside, I usually find that these seeming successes are really just a poor decision to make a large debt-financed purchase.
But when these things happen while you are slogging along dilligently investing week in and week out it can be a bit demotivating. It is tempting to think, “what is all of this careful and disciplined investing really getting me after all?” These kinds of thoughts weigh heavily on us when we see others who have a seemingly carefree attitude towards their finances and purchasing decisions.
Keep Your Eyes on Your Goals
The best thing to do in times when you are not feeling motivated is to review your goals. It is important to test your goals and your plan against your personal values and lifestyle.
Is the Dow Jones Industrial Average ready for a large move upward? I believe it is. Look at the below graph:
The upward sloped line is an exponential trendline based on 11% average return which is not too outlandish for the Dow Jones. However, the sad blue flat line on the bottom represents the actual return.
Yes this is simplistic – but I believe a reversion to the mean is coming soon with a large and sustained move upward. We’ll have to make up some ground to get back to where we “should” be on the Dow.
I have heard a lot of excuses for not investing in the stock market. I probably never heard more of them than during the years from 2000 to 2012. “My 401(k) balance keeps getting lower!” and “I don’t even want to see my account statement.” were all I heard when it came to stocks. I had a close friend sit me down and ask me what he should do – he was sincerely concerned about his investments and was considering selling all stocks.
But investing patiently for the long-term in stocks is still a wise move even in difficult markets like the early 2000’s.
Sure, this was a dismal time for the market with ups and downs that went roughly nowhere. Many people were investing with the hopes of getting 8-12% return on their money. Instead, they got almost nothing.
What is an investor to do in times like these?
One answer: Dollar Cost Averaging.
If you haven’t heard of this strategy keep reading. If you are familiar with this strategy, I still think you will find this example and analysis interesting. I have been practicing this strategy for years but was still surprised by how powerful it is!
Everyone seems to be obsessed with getting rich right now. What’s the rush? Think about this: its clearly easier to make money writing books about how to get rich quick than reading them. So what is wrong with trying to get rich quick?