Realities for Personal Investors

Most of the investors I talk to both professionally, and in my personal life talk about the fear of losing money in a market downturn. While the fear of market downturns is valid, it is not the real risk that most investors face. Here are 3 simple rules that I want my clients to understand:

1. Financial Markets can be volatile and lose value at times over the short term, but historically they produce positive returns over the long term.

2. It is very difficult to beat the market consistently, for individual investors and for professional money managers alike.

3. Emotions generally drive us in the wrong directions. We tend to underestimate the power our emotions have over us. Fear and Greed are the principal emotions involved in investing. Fear is usually a stronger emotion than greed and often trumps rational decisions related to investments.

I think that the more an investor understands and follows these rules, the better off they will be. To follow these rules, investors need to have a plan, have a discipline, and remember why they are investing in the first place. I've never sat down with a client and uncovered that their investing goal is to "beat the market". Rather clients are often investing to fund their retirement or to send a child to college or any number of other personal goals. So the real risk they face is not underperforming the market or losing money in a downturn, rather it is that they won't have enough money to last throughout retirement, or that they won't have enough to send their children to college.

Investing and financial planning is about YOU AND YOUR GOALs, not about the market or what other people are doing.