Photo source: Baltimore Sun
As we’ve seen over and over again at the World Cup, teams are more afraid of losing than going out and trying to win. No better example was Switzerland playing Argentina in the Round of 16. Had Switzerland realized that Argentina’s defence was actually beatable from the beginning of the match, perhaps the scoreline might have been different. Once they figured it out, it was too late.
The same could be said about our own personal finances. The fear of losing money trumps all logical sense that in the long term, a diversified investment portfolio tends to grow. By the time we figure out that we may not have enough money to retire in our golden years, it’s too late. Money can’t be made in a blink of an eye. Winning the lottery is not a practical retirement strategy because the chances of that happening are slimmer than the USA out shooting any of their opponents in a football match.
Everyday people go out in the rat race to try to stay ahead. Making money is hard so we decide to keep it safe in a bank savings account. Keeping money in the bank and earning next to nothing from interest payments is depressing, but we do it because it’s safe. As the stock markets continue to rise, the we continue to stay on the sidelines. Headlines appear every day saying that the bubble is going to burst, but it never does. We wait and wait and wait, but never brave ourselves to take the plunge.
When we finally jump in and the markets drop 1%, we panic and sell. It’s too nerve racking. Watching those red numbers on the screen gives us anxiety that we can’t handle. Our patience wanes, if we don’t succeed now, we’ll never succeed. Giving up is better than trying at all. Playing defensively and waiting for the inevitable seems like a better strategy. Never mind that over the last few years the market has been positive year over year, but it’s that one day drop of 2% that scares us.
The key to success in investing is staying in the game for the long run. Let the other people who try to time the market or day trade lose their money. As long as the markets go up over many decades, that’s all that really matters. Realistically we’re not all going to retire at age 30. If we’re not retiring and continuing to work and be productive, why not let our money work for us along the way? Stay committed to a diversified and balanced portfolio and reap the rewards of compound interest.
Risks need to be taken, otherwise it’s like waiting for the inevitable to happen: We run out of money. Everyone feels that it’s necessary to save millions of dollars in order to retire, but that’s not true. The successful retiree doesn’t spend their savings, they spend their interest. In order to spend only on interest in retirement means that an individual needs to build a successful investment portfolio over their lifespan.
Don’t sit back and wait until it’s too late. Go out and read a site like Canadian Couch Potato to learn more about building a balanced and diversified portfolio. Understand what it means to have a balanced portfolio. Most importantly, understand that with inaction, we all end up on the with same fate as Switzerland did against Argentina. Losing.