| Promiscuous Investing, Chapter 5 – Distraction
Promiscuous: "indiscriminate; casual; irregular; haphazard."
Mark Twain said, "Never put off until tomorrow what you can do the day after tomorrow."
Funny - until we realize he is describing our inclination to put things off; not because they don't need to be done, but because we don't want to do them.
We become distracted from tasks we consider boring, tedious, confusing, and/or scary. Of note, these are words people often use when describing their investing experience.
On its own, this perception is burdensome enough to invite delay. But there is a further compounding factor: No Deadline.
From paying bills to taking out the trash, most matters of tedium have to be done by a certain time. Aligning our money with our goals does not. While of considerable importance, this task carries an unending chain of possible "day after tomorrows."
As an easily distractible species, it isn't uncommon for decisions to be put off for months or years. The result is summed up well by Winston Churchill, "a failure to plan is a plan for failure."
Lack of investment planning is repeatedly evidenced when comparing investor returns to the market on average. Dalbar's recent "Quantitative Analysis of Investor Behavior,"[1] showed equity investors rigorously underperformed the S&P 500 index by -4.3% (compounded annually) over the last 20 years.
Back at the ranch, fixed income investors trailed Barclay's Bond Index by a staggering -6.5% (compounded annually) for the period. Under these conditions, a $200,000 investment split equally between stocks and bonds underperformed the market return by more than $350,000. That's 150% of possible return left on the table.
Averages being what they are, about half of all investors did even worse.
Mr. Twain's anecdote is less a quip than an observation of what we tend to do in relation to what we should do. When it comes to investing, distractions and wavering can have catastrophic results. After losing four million in today's dollars and going bankrupt at 59; my guess is...Twain would agree.
Time is the most important factor in the formula for creating wealth. The length of time invested has far greater impact on results than contributions or returns. Amounts saved and interim earnings are variables in the equation. Time is the only constant.
The Chinese have a proverb: The best time to plant a tree is 20 years ago. The second best time is today.
If you've already planted your allocation and plan to tend it periodically kudos to you. If not, getting to it today is your next best opportunity. At the very least put it on your calendar in the next week and stick to it.
If you are unsure about how to invest your 401(k) or other long term investments, find an advisor that focuses on controlling costs and allocation geared to your needs and goals.
Oh…and try not to get distracted.
I welcome any question or comment.
becker@wiserfinancial.com
Marc Becker, AIF
Managing Partner, Wiser Financial Coaching
Columnist, The Advisor Sherpa
To read past articles and view past videos, visit: www.marcbecker.tv
[1] http://www.qaib.com/public/default.aspx
Trivia Time
This week's question: Football season is here! In what year did the Superbowl feature teams with Equus caballus and Falco peregrinus mascots?
Do you know? E-mail your answer wendy@wiserfinancial.com and if you are correct, receive a free "Way to Go!", "You Rock!", or other congratulatory phrase. Then brag to all your friends about how smart you are.
The answers will be in next week's newsletter!
Last week's question: What happened this week that will not occur again until July 31, 2015?
Answer: A blue moon. We call it a "blue" moon when a full moon occurs for the second time in a calendar month. This happened August 31, and will not happen again until July 31, 2015.
Congratulations to George, David R. and Dick W. for getting the correct answer! What clever people.
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