This article was contributed to us by Endowus.
Fidelity conducted an internal study and found that individual investors who did the best were the ones who forgot they had an account.
There are many possible explanations, but the simplest is usually the most correct: these investors did well because, unbeknown to them, they allowed their money to compound over the years.
It’s About Time In The Markets, Rather Than Timing The Markets
We have written about this extensively in the past: rather than trying to time the market we should be focused on sticking to our investment goals and always being invested in the market.
We are our own worst enemy and in today’s hyper-connected world. We get global financial news in real-time and can trade with a few clicks. We often allow our own behavioural biases to get the best of us. Our emotions of greed and fear kick in at the worst time; we always end up buying into the frenzy right before a crash or selling right before the rebound when things look hopeless. By losing passwords and creating barriers to playing with our accounts, we negate our behavioural biases.
Even Warren Buffett said, “I never have an opinion about the market because it wouldn’t be any good…” If the world’s most successful investor can’t time the markets, can you?
Most Importantly, Start Early
The earlier you start investing, the more compounding you allow to happen. While a few percent over a few more year doesn’t seem like much, over a longer time period it adds up to be a mind boggling amount.
Return of 7.5% per annum is for demonstrative purposes only. For reference, the annualised return of the MSCI World Index (gross, USD) from Jan 1970 to July 2019 was 9.54%.
$100,000 invested for 40 years earning 7.5% compounds to over $1.8 million. Stretch that to a lifetime of 80 years and it compounds to a staggering $32.5 million.
And an even better way is to set up a regular investment plan and stick with it. Commit to faithfully invest every month, until you retire. After you retire, stay in the market, and commit to drawing a level of income from your money pot that will last you until death.
We know it sounds pretty boring. But life is not meant to be exciting because of the investing you need to do.
We think life is exciting because of our unique experiences and relationships, and that is where we should focus our attention.
So burn that password.
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