It can take a whole lifetime to become a good investor. The journey is often accompanied by intense feelings of excitement, greed, regret, and fear.
There are lessons in many of these experiences, and, the great thing is, you don’t need to experience all the bad parts yourself to learn the same things!
Introspection and humility can add meaningful, positive results to your portfolio performance.
So, what do I think a wise 80-year-old investor would tell their younger self?
1) Don’t panic with every crisis. It’s okay to be worried when bad things happen in the world, but they happen, literally, all the time. They are a feature, not a problem to be steered around. Don’t change your strategy just because some idiot dictator is threatening war, or you don’t like the president. Stay the course sounds trite, but what is even more ridiculous is to think you know more than the collective wisdom of the entirety of investors in the world. Usually, the last thing you do in a bad market is throw in the towel. It will likely kill your results and can take you years to recover from. Read market history for reinforcement if you need to, or take my word for it.
2) If you need a safety cushion, get one going. When you get to be my age, you know you might not have another market cycle to live through. So, I like to keep at least ten years’ worth of spending needs from my investments in pretty safe things—some of my friends even up to 20 years. The money doesn’t have to be in the bank, but they can be in tax-free bonds, real estate, or other lower-risk investments. The simple truth is, we will likely have a decade or two of chaos, hugely down stock investments, and I don’t want to sell my Microsoft when everyone else is panicking. I know enough now, to know that I don’t know what is going to happen. That is how long-term investing works, and I might even buy more stocks if they are down a lot and buy groceries with my safe money stash.
3) This is a hard one. Try not to get too greedy. A rising tide lifts all boats. This does not mean you are a genius investor because you have some of the hot stocks. What goes up fast can go down fast. So limit your bets. If you have an investment that goes up to where it’s a huge part of your portfolio, consider selling some over time. It is not a “sell it all” decision—so many people get hung up only selling a small amount! Sell a few shares regularly, put it on the calendar, and hold yourself accountable even when it hurts to do so. Use the cash for other investments that can also do great and remember to consider bolstering your safety cushion in good times, too. Buying safe things with lower expected returns is hard when things are going so well. When you are close to retirement, don’t be like I was—with all our money in stocks during the dot-com bust! Many of my friends almost got divorced over that one. That lesson won’t be forgotten, learn from me!
I know many of these people, and they know what they are talking about.
Thanks for taking a look and have a great day!