The Truth About Market Volatility: How to Keep Calm and Stay Invested
Understanding Market Investments
If you follow the markets daily (and I suggest you don't), you may feel a bit queasy lately. Food doesn’t taste as good, your shoulders are sore, and people might be giving you some extra space. This is no way to live.
The Problem with Short-Term Investing
If you are investing this way, let me be clear: you are doing it very, very wrong. Market-related investments are impossible to predict in the short term. If they weren’t, everyone would be doing it! Instead, over any extended period, everyone gets short-term movements wrong. Yes, everyone.
Academic Support
There are mountains of academic research that back this up, but you don’t have to go read all that stuff to know this. Instead, simply ask yourself:
- If anyone could truly predict markets in the short run, trade on them, and make money, wouldn’t we know it by now?
- Wouldn’t that person be the largest, or the only money manager to exist today?
- Why would anyone hire anyone else?
And if that person didn’t happen to be a money manager, wouldn’t they soon become one? They might be happy only investing their own money. But, wouldn't they soon see how much more wealth they could gain by investing for others too?
No, there are no one-eyed men in the sea of blind short-term traders.
The Benefits of Long-Term Investing
However, over longer terms, markets are quite predictable. The only way to invest successfully is to structure your portfolio with a long-term view. You must be able to maintain it when the next crash comes.