 | | ILLUSTRATION: TAMMY LIAN FOR THE WALL STREET JOURNAL | | |
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| So you've saved some cash, considered your investment options and bought a nice diversified group of stocks. Now what? Close the app and forget about it. No really—go read a book, turn on the TV or head out to meet a friend. | | |
| Well, okay, maybe before you shut it all down, set up a monthly transfer to add a bit more to your investment every month, but that's it. Don't look at it every day and whatever you do, DO NOT press that sell button. Get your celebration confetti from your fitness app instead. There are great piles of research showing time and again that one of the biggest investing mistakes people make is to buy and sell way too often. Even looking at your investments often is correlated to lower returns—it's just too tempting to fiddle. We try to time the market and miss out. Or get scared by a big drop and sell our stock only to miss out on the bounce that often follows a few days later. Nearly all of the very best days to be invested in the stock market have been within days or weeks of the very worst ones. So what if you missed a good day or two during a scary stretch? At least you could sleep at night. This week we'll ask you to estimate how much that peace of mind might cost you in the long run. What would missing some of those very good days add up to? —Rochelle Toplensky, former Heard on the Street columnist | |
| 93 Years It can be easy to think the past is a good predictor of the future, but it isn't. A recent study of trading data from 1925 to 2018 found investors try to "chase stability" by buying stocks that have been stable, but those are often high-volatility ones in the future. The findings held up across a number of markets. | | |
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| This week's challenge teaches you about: Perseverance. | | |
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| ⏰ Suggested time: 1 hour Step 1: Checkup. Log into your brokerage account and look at how many days you sold this year. Note that number down. | |
| Step 2: Look up your stocks. Did your stocks or stock funds go up or down after you sold? | |
| Step 3: Calculate your returns. Calculate how much you would have made if you hadn't sold. J.P. Morgan Asset Management calculated that a $10,000 investment in an S&P 500 index fund would have been worth $32,421 if allowed to accumulate between 2000 and the end of 2019—a 20-year period that saw more than 5,000 trading days. If you missed the 10 best days, it would leave you with $16,180, or just half as much—and that's before paying capital-gains taxes! Missing the 20 best days would leave you with hardly any gain at all. | |
| Step 4: Calibrate your confidence.
What's that? Already have a string of wins under your belt? Congratulations, but please realize it is all too easy to mistake luck for skill: Flipping a coin to get heads 10 times in a row isn't nearly as rare as we think. Overconfidence is a really big problem, even more so for men. We all like to think we know better, but the harsh reality is that we usually don't. Markets are volatile and they bounce around. A lot. The good news is that generally, over time, they rise. So buy that diversified set of investments when you can and then leave them alone to enjoy the bumbling walk upward over time. | |
| | ❓Questions to Ask Yourself❓ | | |
| 🤔 So...am I an investor now? What we've taught you isn't likely to double your money by Christmas, but payoffs like that come from gambling not investing. And despite the claims to the contrary, gambling rarely pays off. Someone's losses are paying for all those lavish casinos. | |
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 | | PHOTO: ANDREW CHIN/GETTY IMAGES | | |
| A song about money I'd recommend is "If I Had $1,000,000." It is both the 1992 breakthrough song of Barenaked Ladies—an iconic band from my Canadian homeland—and also a lesson on the cruel costs of inflation. Decades on, in many places, you wouldn't get much of a house for $1,000,000, never mind have cash left over to furnish it, buy a car and consider yourself rich. | |
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