Racing the Stock Market

Update: You can also see the video below

If you’ve been involved in the investment market awhile you’ve probably met a lot of people like my friend Steve.

Steve has been waiting for the market to crash for the past 7 years.

He could have made some pretty serious returns by now, but he thought it better to “wait”. Then, at last, the market went down 30%. And what did Steve do? Nothing.

Steve never bought the dip because he was waiting for the market to go down even further. So Steve decided to wait some more.

That was Steve in 2013.

And that was Steve in 2018 and again in 2020.

And this will probably be Steve in the future over and over again.

The problem for Steve is that he never had a plan.

Investing needs a plan. A long term one. Being comfortable with the selection of your risk profile means you will not laugh as loud when the market starts running but you also won’t suffer as hard when everything goes crashing down.

Do you know why Steve lost money?

He tried to rationalize an irrational market.

The stock market doesn’t always follow the economy.

That is why a lot of hedge funds end up losing whole accounts. They try to find the perfect time to enter and exit the stock market.

They try to Sprint instead of a Marathon.

…

Now let’s talk about my friend Lora. Lora keeps investing $100 every week in the stock market.

When the market crashed, she collected some tax credits and decided to max up her IRAs for the previous and the current year.

When the market started going up, she invested $100.

When the market went a bit down, she invested $100.

When the market started going up and up and up, she invested $100.

Lora had set a specific goal from the start: to keep investing while maintaining a balanced portfolio. That mindset is how people consistently build wealth.

Wealth is created by following a plan during times of volatility. It is that simple.

So what can you do?

First of all, be calm. Make sure you have enough cash in your savings.

Work towards eliminating debt and then create a simple portfolio and commit to it. Commit to not removing any money unless it had drifted from your target. Let it run. Collect your dividends, do your tax harvesting and keep running.

You cannot outrun someone when you are at the pit stops.

At AgentRisk, we build investment products and tools for individuals as well as for financial advisors and wealth managers, leveraging state-of-the-art machine learning algorithms and time-tested investment theories.