#MakingLemonade
So I get that the overwhelming majority of retail investors on Public have only been investing for <1 year. This lack of experience and lack of time in the market makes it very nerve-racking as everything that is said on here in terms of buy and hold and trust in the long term timeline is just me asking you to take a leap of faith. It all seems great in theory but in all practicality it doesn't do a lick to help calm the nerves when you are staring at your hard earned money in the red. We are psychologically wired 🧠 to hate losses 📉 more than we like wins 📈 ... Behavioral Economics is a fascinating studay and a talk for another time.
Here are some practical tips:
1. Past performance does NOT guarantee future performance
- This is definitely true about individual stocks and so you don't want to invest in a company that was terrible to begin with, but just because a company once was good doesn't mean it will always be good ... look at $GE
- This however isn't a 100% true for ETFs that track an index fund. If you zoom out over a long enough timeline for an index fund tracking the S&P500 or the VTI which tracks the total stock market you will see that the overall trend is in the positive ... you just need to hold it for long enough.
- So for me, this is why the bulk of my investments are in diversified ETFs that I plan on holding for the long term and I mean 10-20 years ... if you look at the 5 year time line for $VOO or $VTI you will see a huge dip back in the Feb/March 2020 Bear Market ... it was not fun in the moment but if you look at it under the 5 year it looks like a minor pothole
- It is also worth pointing out that the last 1.5 year Bull Market has been unlike anything I have ever invested in since 2012 ... so you might want to readjust your expectations down to aiming for 10% annualized returns and 15% on a good year - but if you aren't sure just compare yourself against the $VOO as a benchmark
2. Make the Most of a Market Correction or Bear 🧸 Market:
- You can't time the market consistently, but you can prepare for a bad situation and have a game plan in place for when the market drops 10-20% and one day it will ... and it will hurt, I just hope you don't panic and sell off and call it quits
- Feb/March 2020 saw all of my investments crater ... this was not fun, but I am grateful that I was still able to work and make money that I could pay my expenses and still invest consistently throughout all of 2020 ... dollar cost averaging was all I did putting in money as I got it
- So for me, I ended up making great returns on my investments during the Bear Market and all my money that was already in the market when it crashed had recovered as well ... this is the value of simply sticking with your dollar cost averaging plan if it is into quality investments whether that is individual companies built to last or in diversified ETFs. I didn't time anything, I just kept participating in the market.
3. You Only Make or Lose Money If You Sell:
- When you exchange your money for a stock ... you are essentially getting an allotment of a company which means that while the company's value might go up and down, and as a result the market price might go up and down, but you still hold onto that same % of the company
- So while the value might go up and down, the amount of the company you own remains the same ... hence you only make or lose money if you sell ... these are called realized gains or losses
- So for me, I buy and hold investments that I think are going to be durable over a long timeline because while the price might be fluctuating in the present, I know the overall trend in the future will be positive
- Updated: "I would just add on # 3, you will also lose money if the company goes bankrupt or closes" - @Aubrey376 (Good point!)
4. Losing Money is harder to make back than just making money
- This is a hard one to understand on the surface and the simplest way is with this illustration
- Say you invested $100 and you lost 50% down to $50 ... now lets say that $50 investment made 50% the next day ... 50% of $50 is $25 so your new total is $75 which is still 25% below your initial $100, as it would have required a 100% return on that $50 just to get you back to even at $100
- This simple fact is why I choose less risky investments and "settle" for being "The Market" and just dollar cost average (DCA) exchange traded funds (ETFs) ... the avg return for S&P500 annualized over the last decade was something like ~13.5% (I don't remember the exact number)
YT Video: What is a Bear Market? https://www.youtube.com/watch?v=1Po-68gsLY4&list=PLn0fZqMvSiYAWIh0P2P4BhAvjo7dJpGHZ&index=54
P.S.: Market Corrections and Bear Markets are just a way of life when investing. If you are planning to do this for the next 20+ years ... you will experience a few market corrections and probably 1-2 bear markets at the very least. This is healthy for the market to go through and you just need to get with the program and have a strategy in place.
#PsychologyOfMoney #HealthyHabits #NewInvestors #MindsetMatters
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Very well written and thought out. I would just add on # 3, you will also lose money if the company goes bankrupt or closes
I Agree with yA.. Buy and hold! Dont see red. Ever
Thank you for writing all of this out.
One thing I’ve learned, doesn’t matter if it’s red or green. It’s not a loss or profit until you sell
I really appreciate you writing this, I've been scared to invest for the longest time, now I find myself being somewhat obsessed. I made it my goal to hold onto my stocks and invest as I can...trial and error but hopefully I can learn a thing or two along the way!
I really needed to hear this. I’ve invested in mostly RIETs and ETEs and in the past 2 days or so have seen red. I have had considered selling everyone but in hearing this I think I will hold off. I’ve only been investing the past 3 weeks.
@bubbaseeds 💎🙌
@angharry my pleasure
@KingSolana yup 😁
@babsmcclintock glad you joined Public! 👋hi and welcome
@XxAllSauceXx …See more
🐢Amanda🐢@frump
ETFs are my new favorite thing. They don’t always go up, but when you look at the potential over the long term, it’s nice.
The more… unique… stocks that jump constantly just aren’t my style. Can’t seem to figure the rhythm 😆
So genuine question, do you think Public will be around in 10+ years to see the ETF gains?
It makes perfect sense. I will check out VOO. Thanks again!
@frump it is something to be thinking about and be concerned about. Part of the reason why the bulk of my money is in Fidelity. That being said, if $HOOD is has been around since April 2013 ... and looks like they will reach it, I think Public has a good chance.
@XxAllSauceXx 👍
Well written
Very well written. Thanks
Those hiccups are important lessons you really do learn from your losses weather the storm ☔ weatherman
Very well written. Knowledge is power 📚
🙌 all hail the mighty ETFs.... Most of my dollars go into them as well.... Plus it's kind of neat to get the little dividends.... Definitely agree with you there about investing into them for newbies..... Think ahead 5 years, you will thank yourself for it I promise!😁
thank you for the info very helpful, I just started and seeing alot of red lately so panicked a lol
Great nuggets of wisdom! Thanks for sharing!🎢
SS
Shannon Smith@Shangmarie
🦍
I really need to log of and take a break doing foolish stuff today for sure. 😦
Very well written 👌
Aaron@aaronbu
❤️ So true
@jp1983 💙
@AxA lol ya ... I had typed it up earlier in the week and saved it for a red day 😂
@kokochanel thank you!
@imsobricccity yup gotta weather the storm and not get blown away
@freestate thank you!
@echophaseSD ETFs are super cool because they make me money consistently and often!
@joped glad you liked it! feel free to check out my blog https://www.ctsshah.com/new-to-investing ... that is the first and then build on it. My other stuff is simply https://linktr.ee/ctsshah and they are all free
This was very helpful to a beginner investor. Thank you. ❤️
Brian Jones@Chillz2501
I'm new to trading also just transfered over here from another brokerage. I find that if you invest in a company that you believe in and do your homework going in the red won't make you break a sweat. Although I'm not investing millions at a time😁
💪🏻Stay strong fellow investors…. Instead of panic selling. Do re- revaluation of your portfolio. Sort longterm stocks to their areas. Look for buying opportunities. Check your conviction! Research 🧐 find out the price to earnings… look at recent 📰 news on your holdings. Periods of pullback are normal
