It’s day 22 and we’re diving into investing week, let’s get into it!
Does it seem weird to start investing with emotions? Maybe. But emotions are a HUGE part of investing. Not that they should be, but many many people act on emotion when investing. See this handy dandy chart:
As your investments increase your optimism goes up. When your investments are up, you’re euphoric. This was us in February. The markets were up, optimism was high. Then Covid-19 slowly made it’s way toward us. We got a bit anxious, then said nah, won’t impact us. Then we slid into desperations and panic. I like that this chart ends on optimism again. The market always recovers.
Over a 30 year period researchers found that the S&P 500 averaged 10.35%. During that same period the average investor only averaged 3.66% (2016 Dalbar Study). This is a HUGE difference. Why the big gap? Because people let emotion impact their investing strategy.
Here’s a little example:
Imagine you invested $10,000 and over a 30 years period you only received a 3.66% average. You let your emotions get the best of you and you overacted a couple of times. Your initial investment, after 30 years, only results in $29,931.58.
Now imagine you invest $10,000 and just let it be for 30 years. No mega moves, not over-paying on fees, etc. and you receive 10.35% average leaving you with $220,141,58.
You might think this is nuts, but people do this. They go to cash when the market dips. There ends up being about 10 good days to get back into the market after a big dip… but those 10 days are only identified in retrospect. It’s nearly impossible to time the market this way. Leave your money alone. Even when you are scared, in fact, especially when you are scared.
For more personalized guidance don’t forget that a Hey Money expert is always ready and waiting to help you sort out this mess. Use code ‘cheese’ to get a 10% discount on a monthly subscription just for being a part of the 30 day recession-proof your life program. Stay strong!
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