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In The Media
1.
The lessons from the market
Part of investing is discerning between what will change and what will stay the same when digging for opportunities. History hints at the answers.
Study a little history and you’ll recognize obvious changes over the past century due to innovation, new business creation, and more that created massive opportunities for investors that recognized it and held on.
However, one thing stands out that has changed the least — human nature. The behavior of other investors creates massive opportunities, but it requires learning a different lesson then everyone else.
What doesn’t change is that we learn the wrong lessons in bull markets. Those incorrect lessons lead to complacency, illusion of easy gains, and excessive risk-taking when, in fact, caution is warranted. The best time to prepare your portfolio for losing money is when you’re making it.
2.
Why Lump Sum Investing Beats SIPping (But Your Nerves Might Disagree)
The stock market was up 76% of the time on a one-year basis.
So if you have a pile of cash you’re sitting on, the probabilities would tell you that investing it in a lump sum is better than dollar cost averaging into the market.
Inverting this line of thinking would mean dollar cost averaging out or waiting for the last possible moment to sell would give better results than selling it all upfront.
The spreadsheet answer is that you should buy fast and sell slow to take advantage of the fact that the stock market usually goes up.
That’s what the math, spreadsheets, and market history tell you to do. However, some people cannot stomach the math for psychological reasons. This is why some investors dollar-cost average a pile of cash into the markets even when they know investing a lump sum is the better option.
Averaging in is a hedge against bad timing or bad luck, which is a totally reasonable sleep-at-night strategy.
If you pull out your entire distribution at the beginning, end, or middle of the year, you could run into bad timing or bad luck by selling in a drawdown. Most of the time, that won’t happen, but sometimes it will.
If you’re really worried about that scenario maybe selling once a month or once a quarter makes more sense.
Pic of the Week
Thought of the Week
“Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.” – Morgan Housel
Video of the Week
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