Ray’s Take: Sometimes, it’s tempting to try to beat the market through the excitement of stock picking or by choosing riskier investments with the promise of a higher return. It seems like everyone has a friend of a friend with a great investment story.
Maybe he bought a high-flying tech stock that tripled in price within a week. Or maybe she put a huge chunk of money in some stocks near their bottom during the banking crisis and rode the rally all the way up to today.
It’s tempting to believe these stories. But they are rarely true – or complete.
The truth is usually a bit more boring. Starting early and investing consistently is the key to maximizing investment gains over time. Choosing investments with consistent, realistic returns that manage risk, rather than looking for those get-rich-quick stocks, is the way to obtain consistent results in the long run. Having a good plan and sticking to it is essential.
The stock market will rise and fall, and recessions will come and go, but if you invest steadily over the course of years, your overall return will likely be a good one. If you observe life, you’ll notice we’re all out spending money on goods and services. By investing, we’re acting as owners of the same companies we’re buying stuff from. Owners tend to be compensated better than loaners. Fear and greed are your enemies. Your long-term plan is your shield.
In many ways, our society conditions us to think that anything that is boring is undesirable. Investing isn’t supposed to be exciting. Any stock that can rocket to the moon today can crash and burn tomorrow. Set aside some money in a play account if you feel the need to get your blood pressure up from trying to time the market.
But, when you’re planning your retirement, steady, well-thought-out plans will get you where you want to go. If you need more thrills, go to Vegas – at least you’ll get dinner and a show.
It may be boring, but it’s true: Habits can move mountains, especially with money. Our children and teens witness our habits and will probably follow them – both good and bad.
A habit where I could improve is checking the budget before going shopping. Usually I head out shopping and hope it works out in the end. If, however, our kids saw me stop and go to the computer and say, “First, let me see how much we have saved for clothes/camp/patio furniture.”
If I did that before every trip to the grocery, Target and Home Depot, we’d have extra money for that trip to France I want to take and our children would learn more disciplined habits with money. Sounds like a win-win to me.