Reasons Most Investments Fail
Lesson 11 from: FAST CLASS: How to Retire Early: The Latte FactorDavid Bach
Reasons Most Investments Fail
Lesson 11 from: FAST CLASS: How to Retire Early: The Latte FactorDavid Bach
Lessons
Financial Education - Know Better To Do Better
15:12 2Start Early, Start Today
07:02 3The Latte Factor: How It Works
16:31 4FITE - Financial Independence to Transition Early
04:39 5Common Investment Mistakes
01:29 6Becoming Rich on an Ordinary Income
04:04 7How Much do You Need to Retire
01:47 8Retirement Plans & Where to Start
05:23Lesson Info
Reasons Most Investments Fail
what are the reasons that most investors fail? Because the truth is that most investors don't do nearly the job that they should do when it comes to their money. So number one is that they try to time the market and I'm gonna show you what this means in a second. But they try to time the market, they wait to invest, they procrastinate. They say I'm too busy, They don't save enough or they take too much risk. Like those are the four primary reasons then investors fail in my opinion. So let's go to number one trying to time the market. What does it mean to time the market? How many of you have ever been in the lane? You're in your car, You're in the lane and it's sure enough, the lane stops, right? So what do you do? You switch lanes? And then as soon as you switch lanes, what happens Lance, stop And the other leg goes right by him. This happens in grocery stores, right? This I mean, this happens in ski lines, inevitably the moment you switch line, somehow the line universe knew it and t...
hen it stops it. Right? Well, the funny thing is in the market similar. So I'm gonna show you this, this is a chart you can't read. It's intentional. But what this chart shows you is it shows the stock market from 1997 to this case, 2016. So basically 20 years of data, it shows the top performing investments all the way to the bottom performing investments. I am at the top. First of all, let me ask a question. Do you notice something at the top. Do the colors of the top. Stay the same. Do you got when you if you look at this, do you see um something that you could figure out to help you understand what color to buy? Yeah good because there's none in there. Do you think the people so when they're down here typically and then when do you think people by all the time now there's a lot of reasons why people do this. First of all it can happen your foreign K. Plan, you open up your foreign K. Planning, you look at that, you get the statement and the statement shows you what the number one thing was. And so you're like why should just put all my money and the number one thing you make a change next year. It's the worst. You can drive yourself crazy in a 41K. Plan. You shouldn't, you can drive yourself crazy. And Ira account if you start doing this up and down up and down. So this line here in the middle which is black notice how it's not going up and down as much, it's kind of going right through the middle. That's a diversified portfolio that is a mixture of stocks and bonds over 20 years. Now here's what's interesting that boring diversified portfolio of stocks and bonds a little bit of everything has had an annualized return in these 20 year periods Of 7.5. 6%. Pretty good. Right, boring is good. Here's what I say, boring, boring, boring, repeat after me, boring, boring, boring. You want a boring investment plan and an exciting life so you don't want to time the market. I'm gonna show this to you in other ways. This is a technical slide, says average investors suck. Uh huh. The 30 Year return for the average investor has been 3.98% according to Dalbar At the same time. The s. p 500 has been over 10. Why? Because investors invest and they buy high and they sell low. Don't time the market don't trade diversified portfolio. Leave it alone. The reason time in the market so hard is that the markets move in. Small increments swallowing permits meaning days the markets go up in a small amount of time. They don't, it doesn't go up on an annual basis consistent like this december wiped out investors. Again, The market went down over 20%. People panicked and pulled out of the stock market. They did. I meet them, some financial advisors panicked. If you have financial models that panics in a down market of the wrong financial advisor, they should have a diversified portfolio, they should not be changing their investment philosophy. When the markets go down. If you have an investment vibes that says, don't time the market diversification works. And then the citizen market correct. They tell you they have a new plan, You have an inexperienced financial advisor who's doing something wrong. I've been saying the same thing for 26 years, nothing changes because it doesn't need to change. This is showing you the rate of return the s. p. from 2000 1980, 2015 being in the S. And P. 500 with reinvested dividends for that full length of time had annual return of 12.5%. If you missed the 70 best days of that period, You made 7.2%. If you missed the 5th 40 best days You missed 3.7%, you missed the 50 best stage you made 2.2%. Now I took that over 35 years. I can also reduce this down to 10 years. And what happens is the person who misses the top 50 days lost money.