Book Excerpt – Investiphobia: Overcome Your Deepest Investment Fears

The Fear of Thinking Long-Term

“When you obsess over how your investment is doing from day-to-day or week-to-week, you could be more tempted to tinker with it instead of sticking to your long-term diversified plan. Not to mention, you’ll probably lose sleep.”
Erin Burt, Kiplinger.com, March 13, 2008

 “Asset allocation, not stock-picking, not sector funds, not guessing the direction of the Dow Jones averages, is the key to financial success.”  
Jim Cramer, Intro to The Little Book that Saves Your Assets, by David Darst

One of the most popular investment shows on TV is the Jim Cramer show, Mad Money. If you have watched the show, you have probably heard the question, “Is your portfolio ready for Monday?”  Jim Cramer is a highly-successful investor, writer and TV showman.

His question seems to capitalize on the extreme short term and this is not, unfortunately, uncommon.  We all seem to need answers for time periods that really should not be relevant to our investments.  A better question might be:

“Is your portfolio ready for 2018?”

On the Today Show a few years ago, Cramer created a controversy by looking into the camera and saying “Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now.”  The reaction by many in the financial services field, and the media, was one of outrage and shock. How could he be so dramatic, vocal, and short-term in his thinking?!?  However, there are very few, if any, reputable investment professionals who would disagree with the advice in Cramer’s quote.  You should not invest in the markets for short-time periods.  The stock market provides tremendous growth over the long-term, but in exchange for the growth you must accept short-term risks.  If anything, you should be thinking in terms of at least ten to fifteen years when investing in the stock markets.

Most people who watch the news, or read it in papers and on the web, remember the controversy and might be surprised by Cramer’s position on asset allocation.  One of the books in the recommended reading section of this book is, The Little Book that Saves Your Assets by David Darst.  The Cramer quote at the beginning of this chapter is from his introduction to this book.  Perhaps Cramer’s shows and investing advice are geared towards those who enjoy trading and are savvy enough to keep their “real money” allocated wisely.

The portion of your money that you put into stocks should be long-term money.  Jim Cramer was correct: investing short-term money in the stock market is something you should not do.  If you have money in the market now that you know you will need within the next ten years, then you should probably talk to your advisor about a safer investment for this portion of your portfolio.  He or she will probably recommend high-quality bonds, certificates of deposit, and other guaranteed savings and investments to balance your existing positions in equity mutual funds.

There really is an unbelievable focus on the short term in our society.  When it comes to investing, most people have difficulty thinking long-term because the financial services industry often has a focus on the what’s happening this week.  Brokers, brokerage firms, and product providers need to sell new products—most of which will be purchased using proceeds from the sale of another investment product.  While there are legitimate improvements to products that should be considered as replacements for your current investments, this should only be something you consider on an annual basis when your advisor rebalances your portfolio.  There is no reason for a continuous and active turnover of your portfolio, particularly if it is driven by the availability of new products.

The massive amount of data available about all investments and the markets can be mentally straining.  Some of us are made to feel a constant need to change our investments, buy something new, or sell our current investments.  At the least, we feel pressure to think about our portfolio and investments on a weekly basis, or even more often.  The Internet makes it easy to do this. The Web allows us to track our returns at the individual security level and across our portfolio.  The big banks and brokerage firms often offer tracking tools that can include our bank accounts, credit cards, mortgages, investments, and even our retirement plans.  They can be a very useful tool for tracking your investments and monitoring your broker or advisor.  But if you make a decision on where to eat lunch based on the change that your net worth may have experienced in the past twenty-four hours, this otherwise-useful tool may be causing you to focus too much on the short term.  The proper use of these services is to keep an eye on your accounts and the actions of your broker or advisor.  They also provide a convenient “one-stop” source when you need to know your accounts values — which can be very handy when you need to prepare a financial statement or want to measure your performance.

It is interesting that professionals are trained to invest in growth-oriented investments only when the investor indicates that his or her funds are for a long-term purpose.  The industry is fully aware of the danger of investing in stocks for the short term.  As a matter of fact, your broker cannot invest in volatile funds or securities unless the proper box is checked on your new account form!

Many people have difficulty, or fear thinking long-term, simply because we are buried with so much information designed to make us feel the need to do something.

If you were truly investing for the long-term, why would you make changes so often?  Quite often, we would be better off doing absolutely nothing!

About Paul Puckett

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