I’m not a sports junkie, but I enjoy the occasional game. I am also not very profitable for the various franchises. My frugal nature keeps me from buying overpriced refreshments or swag and I will generally stay in my seat for the duration of the game. As a result, I see all the action and end up truly enjoying the experience! Any time I’ve ventured out of my seat, I’ve often missed a game-changing play.
A successful investment experience is very similar to that.
Whether in sports or investing, many people get distracted, zone out or sometimes actually falling asleep and often missing a crucial game-changing event. As a result, we end up disappointed in our experience. Keeping our eyes off the investing game can take the following forms:
- No game-plan. Behind the bench, the entire sporting organization doesn’t just have a strategy for pursuing the next goal – they have a plan for winning the season. Your financial plan should be structured to help you win at all seasons of life.
- Taking our eye off the ball. Instead of establishing regular investing habits, we get distracted from the meaningful goals and defaulting our dollar toward the shiny and often wasteful objects and experiences that capture our atention. Alternately we can also let our dollars accumulate in the wrong investments and miss out on some great opportunities.
- Losing heart.Have you ever been to a Canucks game that’s going badly and watched all the fair-weather fans leave early only to miss out on a power-play goal in the last minute to tie up the game leading them to an overtime win? Same thing with investors who lose heart when the market inevitably drops and sell their portfolios to cash, waiting for the crisis to pass before they get back in again. We all know how badly that scenario usually ends up.
Just as in missing the winning goal in a sporting event, the impact of missing just a few of the market’s best days can be profound. For example, I will draw on an investing experience from 1970 through to March 17, 2020, using the S&P 500 Index of the top 500 U.S. stocks:
- $1,000 invested in 1970 and left alone would have turned into $121,353.
- If we missed out on only the five best days during that time period, we would only have $77,056.
- If we missed the 25 best days, our capital would have dwindled to $26,989
There is absolutely no proven way to know when to get out or into the market. Anyone who claims they have the magical answer is lying. History and evidence tells us to stay put through good times and bad.
When we finally get to go see a game again, it’s your choice whether you get up for a hot dog or a drink. Your life won’t change too dramatically. When you invest your hard-earned wealth though, my best advice is to stay in your seat.
This column is part of a monthly series courtesy of Richard Vetter, founder of WealthSmart Inc.