10. THINGS EVERY INVESTING NEWBIE SHOULD KNOW
Is there any better way to get pumped up on a Monday morning than reading about investing principles? Joanna just told me that “every imaginable way” is better. She also just told me that it’s sentences like the one I just wrote that keep me from having any friends. My 650 Facebook friends say otherwise, so I’ll proceed with my post.
There was a fun (sorry, Joanna) interesting article I read on The Motley Fool titled 122 Things Everyone Should Know About Investing. It’s a good list of quotes, tips, and insights on things every finance newbie (us) and oldie should know about investing. I’ve narrowed the list down to my 10 favorites with my two cents added.
#10 – Only 7% of Americans know stocks rose 32% last year, according to Gallup. One-third believe the market either fell or stayed the same. Everyone is aware when markets fall; bull markets can go unnoticed.
The markets are kind of like football kickers — you never really know their name unless they mess up. Despite the doom and gloom you’ll hear on the radio, TV, and your drunk uncle at family reunions, most don’t know what’s going on.
#13 – Investor Ralph Wagoner once explained how markets work, recalled by Bill Bernstein: “He likens the market to an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.”
I like to replace “excitable dog” with “Sally” and then this quote makes perfect sense. It’s hard for anyone within a 200-ft. radius to do anything BUT pay attention to Sally because of her superhuman vocal cords and speed when fleeing our grasp, but somehow we always make it to our destination. Don’t doubt mom and dad (or the long-term markets) — and a lollipop reward.
#28 – According to Vanguard, 72% of mutual funds benchmarked to the S&P 500 underperformed the index over a 20-year period ending in 2010. The phrase “professional investor” is a loose one.
Index funds, index funds, index funds! We’ve got a post coming up in a few weeks that will better explain this, but just know that index funds not only beat the majority of mutual funds — they also have wayyy lower fees. And that means more money in your pocket.
#32 – “The big money is not in the buying or the selling, but in the sitting,” said Jesse Livermore.
Patience, grasshopper. This ain’t no sprint. Timing of when you buy or sell is less important than the amount of time you keep that money marinating in the markets.
#40 – Since 1871, the market has spent 40% of all years either rising or falling more than 20%. Roaring booms and crushing busts are perfectly normal.
If you’ve got your money locked up in the market for retirement for the next 30 years, buckle up for a roller coaster. Keep calm and invest on.
#46 – The most boring companies — toothpaste, food, bolts — can make some of the best long-term investments. The most innovative, some of the worst.
“There’s this killer new website called ‘MySpace.’ And I’m going to invest our nest-egg on them.” Shoulda gone with Colgate.
#47 – In a 2011 Gallup poll, 34% of Americans said gold was the best long-term investment, while 17% said stocks. Since then, stocks are up 87%, gold is down 35%.
You know that Facebook friend that listens to talk radio all day and thinks they’re smarter because of it? Yeah, never listen to his advice. The point of this isn’t that gold is a bad investment — it’s that the general public (and especially talk radio ads) offers terrible investment advice.
#95 – However much money you think you’ll need for retirement, double it. Now you’re closer to reality.
Gulp. When we calculate how much we’ll need in retirement, a lot of us don’t factor in inflation and other unexpected expenses in 30 years. Doubling your retirement number isn’t necessarily the takeaway here. But whatever you do, be realistic, overestimate your future needs, and start saving for retirement NOW.
#105 – The Congressional Budget Office’s 2003 prediction of federal debt in the year 2013 was off by $10 trillion. Forecasting is hard. But we still line up for it.
And you thought your budget projections were bad?
#110 – The single most important investment question you need to ask yourself is, “How long am I investing for?” How you answer it can change your perspective on everything.
Your 10-year investment portfolio should probably look a lot different than your 30-year retirement portfolio. The biggest factor is your exposure to risk. The shorter the amount of time you’re investing, the less risk you should expose your money to, and vice versa (more time, more risk).
Is there any better way to get pumped up on a Monday morning than reading about investing principles? Joanna just told me that “every imaginable way” is better. She also just told me that it’s sentences like the one I just wrote that keep me from having any friends. My 650 Facebook friends say otherwise, so I’ll proceed with my post.
There was a fun (sorry, Joanna) interesting article I read on The Motley Fool titled 122 Things Everyone Should Know About Investing. It’s a good list of quotes, tips, and insights on things every finance newbie (us) and oldie should know about investing. I’ve narrowed the list down to my 10 favorites with my two cents added.
#10 – Only 7% of Americans know stocks rose 32% last year, according to Gallup. One-third believe the market either fell or stayed the same. Everyone is aware when markets fall; bull markets can go unnoticed.
The markets are kind of like football kickers — you never really know their name unless they mess up. Despite the doom and gloom you’ll hear on the radio, TV, and your drunk uncle at family reunions, most don’t know what’s going on.
#13 – Investor Ralph Wagoner once explained how markets work, recalled by Bill Bernstein: “He likens the market to an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.”
I like to replace “excitable dog” with “Sally” and then this quote makes perfect sense. It’s hard for anyone within a 200-ft. radius to do anything BUT pay attention to Sally because of her superhuman vocal cords and speed when fleeing our grasp, but somehow we always make it to our destination. Don’t doubt mom and dad (or the long-term markets) — and a lollipop reward.
#28 – According to Vanguard, 72% of mutual funds benchmarked to the S&P 500 underperformed the index over a 20-year period ending in 2010. The phrase “professional investor” is a loose one.
Index funds, index funds, index funds! We’ve got a post coming up in a few weeks that will better explain this, but just know that index funds not only beat the majority of mutual funds — they also have wayyy lower fees. And that means more money in your pocket.
#32 – “The big money is not in the buying or the selling, but in the sitting,” said Jesse Livermore.
Patience, grasshopper. This ain’t no sprint. Timing of when you buy or sell is less important than the amount of time you keep that money marinating in the markets.
#40 – Since 1871, the market has spent 40% of all years either rising or falling more than 20%. Roaring booms and crushing busts are perfectly normal.
If you’ve got your money locked up in the market for retirement for the next 30 years, buckle up for a roller coaster. Keep calm and invest on.
#46 – The most boring companies — toothpaste, food, bolts — can make some of the best long-term investments. The most innovative, some of the worst.
“There’s this killer new website called ‘MySpace.’ And I’m going to invest our nest-egg on them.” Shoulda gone with Colgate.
#47 – In a 2011 Gallup poll, 34% of Americans said gold was the best long-term investment, while 17% said stocks. Since then, stocks are up 87%, gold is down 35%.
You know that Facebook friend that listens to talk radio all day and thinks they’re smarter because of it? Yeah, never listen to his advice. The point of this isn’t that gold is a bad investment — it’s that the general public (and especially talk radio ads) offers terrible investment advice.
#95 – However much money you think you’ll need for retirement, double it. Now you’re closer to reality.
Gulp. When we calculate how much we’ll need in retirement, a lot of us don’t factor in inflation and other unexpected expenses in 30 years. Doubling your retirement number isn’t necessarily the takeaway here. But whatever you do, be realistic, overestimate your future needs, and start saving for retirement NOW.
#105 – The Congressional Budget Office’s 2003 prediction of federal debt in the year 2013 was off by $10 trillion. Forecasting is hard. But we still line up for it.
And you thought your budget projections were bad?
#110 – The single most important investment question you need to ask yourself is, “How long am I investing for?” How you answer it can change your perspective on everything.
Your 10-year investment portfolio should probably look a lot different than your 30-year retirement portfolio. The biggest factor is your exposure to risk. The shorter the amount of time you’re investing, the less risk you should expose your money to, and vice versa (more time, more risk).
