Aminatidi;204739 wrote:
I think a bit of a plan is forming.
Picture a 55 year old lifetime alcoholic. The present state of their body will be a consequence of the *compounding effect* of their daily heavy-drinking - their destructive behaviour pattern - over several decades. If they look back, there'll probably be days/periods they recall where their drinking escapades had upside, giving them some good laughs and escapades at the time, but the relentless compounding of destructive behaviour will have ensured the overall long term effect is highly negative.
For investors, the foundation of any long term plan should be to embed within it good investing behaviour - while minimising destructive behaviour - so that over the lengthy time horizon of a portfolio this daily exercise of good practice can steadily compound into a satisfactory outcome. Along with keeping costs low, much of the rest of this good practice comes down to avoiding the myriad heuristic biases which can otherwise trip us up. Evolution didn't hone us to manage portfolios very well, and it turns out that much of what it did hone us for actually hinders our investing efforts. A reasonable plan should recognise this.
My other half has a reasonable plan: monthly drip into a main portfolio comprising ~70% low cost multi-asset fund, ~20% global equity fund, ~10% other equity fund. Trustnet says 169% over 10 years. She spends no time monitoring markets, predicting what'll happen next or worrying about this or that. Satisfactory returns, no effort, no scope for doing anything stupid. Spends her time earning money to feed into it, or doing more enjoyable stuff. A decent plan.
Looking at recent news, and at the price action of markets, it's clear to see that lots of investors have become worried about stuff...
Imagine now that my other half takes a knock on the head precipitating a complete change of her approach to investing in future. Her new self notes all this negative newsflow and market price action and she decides that markets are "surely" going to tank. So she gets up tomorrow morning and sells the lot. Imagine then that she's "right", and the market does indeed fall as she guessed it might and it's down 10%, 20% or some other amount in a month or two's time. Her inner voice will then surely be telling her: "You're a smart investor, Mrs Blunt, unlike those suckers who held on during a market fall that was 'obvious' to see was coming".
Confidence buoyed, she then has to make another prediction - another guess if you will - of what will happen next and adjust the portfolio again. She then needs to keep making predictions and guesses like this over the full remaining investment time horizon of the portfolio (a mere ~30 years more) such that at the end of that process all these regular predictions and guesses about the unknowable future that she'll have made will need to have compounded such that's she's decently ahead of her former self who wouldn't have done anything at all.
Realistically, I think the chances of her pulling that off and being materially ahead of her former self, who spent zero time and kept the market at a distance and never worried about it at all - are approximately ZERO. Or perhaps less ;)
And the worse part of it is: you only really discover if you are one of those rare investors who *can* exhibit persistent skill at the end of a long period of time once all the compounding has played out. By which time, if like nearly every other investor you don't actually posses persistent skill, or have "an edge", you've already probably ruined your long term returns compared to what you could've enjoyed with a better approach, and it's too late to ever remedy the damage already done.
=> Focus on practising daily good investment behaviour, and long term compounding of this discipline will deal with the rest.