by Tim Walsham, Claritas Wealth
We’re just not wired to be great investors. We’re emotional beings.
It’s one thing to be told to ‘stick to the strategy’ and ignore the short term ups and downs of the stock market. It’s another to actually do it.
Human emotion has destroyed more wealth than any temporary decline in stock markets.
The word ‘temporary’ is really important here. Up until now, every stock market decline has been temporary and there’s no reason to believe that this won’t be the case in the future. The only way to lose was to bail out whilst the decline was happening and before markets recovered. Human emotion destroyed the wealth, not stock markets.
It’s really important though to invest in the context of a financial plan. If you do this then then your assets have been structured so that there is a cash buffer for short term spending and a contingency. There would also usually be a portion of the investments that are held in historically steadier assets so that, in the event of a temporary stock market decline, the defensive assets can be accessed. The stock market portion should be money that isn’t needed for a good number of years.
If all of this is in place then it’s a lot easier to shrug your shoulders when the temporary decline happens. You’ll still feel the pain of the decline, but it’s that bit easier to ride it out if you know that you’ve enou
