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Reasons Most Investments Fail

Lesson 14 from: How to Retire Early: The Latte Factor

David Bach

Reasons Most Investments Fail

Lesson 14 from: How to Retire Early: The Latte Factor

David Bach

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Lesson Info

14. Reasons Most Investments Fail

In this lesson, David shares the top 4 reasons most investors fail; learn what not to do. See a historical representation of an investment from 1926 through today and learn why the stock market will always favor a “boring” investor.

Lesson Info

Reasons Most Investments Fail

one of the reasons that most investors failed because the truth is that most investors don't do nearly the job that they shouldn't dio 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 the second. But they try to time the market. They wait to invest, they procrastinate the same too busy. They don't save enough or they take too much risk like those of the four primary reasons that investors failed 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 sure enough, the lane stops, right? So what do you dio? You switch lanes and then sues you switch lanes. What happens last up and the other land goes right by. This happens in grocery stores, right? This I mean, this happens in ski lines. Inevitably, the moment you switch in line, somehow the line universe knew it and then it stops it,...

right. Well, the funny thing is, in the market similar. So I'm going to show you this month. This is a chart you can't read. It's intentional. But what this chart shows you is that it shows the stock market from in 18 97 to this case 2016. So, baby, 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 in the top? Do the colors of the top stay the same dude you got do 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? No. Good, because there's none in there. So I just wanted to show you what happens in the real world. Let's go with Gray. Happens to be here. Gray was commodities worst performing asset class. So let's say you light gray and you owned it by the second year of it. Being the worst performing asset class, you're like I had gray sell. Great. Get me out of great sues. You sell great. What happens to grain goes up you're like, Oh my God, Seriously graze! Going up. I really did like Gray. I think I'll buy Grey again. What is? Great deal. Oh, then it goes up. You're like, OK, that's pretty good, you know, like great. Then what to do? Kick me out of grade. Great goes What is it? Goes back up, Get me out, goes back down and it just bounces all around, right? It's the worst. It's the best. It's the worst. It's the best. And now down here, By the way, it was the worst. It was the worst. It was the worst. It was the worst. Finally, is what goes back up. Do you think the people? So when they're down here typically And then what do you think, people? By all the time now, there's a lot of reasons why people do this. First of all, it could happen. You're 41 k plan. You open up your foreign K plan and you look that you get the statements and statement, shows you what the number one thing was. And so you're like why she just pulled my money in the number. One thing you make a change next year is the worst. You can drive yourself crazy in a 41 K plan. You shouldn't you drive yourself crazy an IRA account if you start doing this up and down, up and down. So this line here in the middle, which is black notice house. It's not going up and down as much. It's kind of gone 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 7.56%. 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. If you go to a cocktail party. What? Your investigation is interesting enough to talk about over a drink. Something's wrong with it. People don't go to cocktail parties and go, you know, it's amazing. I pay myself 1st 1 hour day of my income into a diversified portfolio. They should you will, but most people don't so you don't want to time the market. I'm gonna show this to you in other ways. There's a technical slide says average investors suck. The 30 year return for the average investor has been 3.98% according to Dalbar. At the same time, the S and P 500 has been over 10. Why? Because investors invest on, they buy high and they solo 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. Smalling From its 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 bothers panicked. If you have fun antibodies that panics in a down market of the wrong financial visor, they should have a diversified portfolio. They should not be changing their investment philosophy. When the markets go down, have you have an investment? Bodies that says Don't time the market diversification works, and then the Susan Market corrects They tell you they have a new plan. You have an inexperienced financial visor 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 and P 500 from 2019. 80. 2015 being in the S and P 500 with reinvested dividends. For that falling time had annual return of 12.5%. If you missed 70 best days of the of that period, he made 7.2%. If you missed the 5th 40 best days, you missed 3.7%. You miss the 50 best age 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 misses the top 50 days. Lost money. You could literally get out the old It just happened. You could have got the market in December and you just missed a run up of 20%. And now what's happening is people reason one reason markets going up so fast, all of sudden people got out, including money managers, and they're having to chase it because now they're looking like an idiot. It's almost always he but But now they have to get down to change the market back in. So which is why the market could keep going higher. So it's time in the market that works, not timing the market. This is another chart that shows you what I showed before. It's in the back of the book on Lee. It shows it with dollars, So this shows $1000 invested in 26. Those that small company $1000 invested in 1926 is were $27,200,000 in 18 $26,000 invested. Large carry large companies worth $5,597,000. Right? If it's in bonds, which was the bottom part of the pyramid, it's worth $90,000. Do you notice a pretty significant difference now again, If it was diversified, you be right here. Still pretty darn good. But one thing that's kind of neat about that chart is showing you everything that went wrong in the world. There's always stuff going wrong. The markets go down, the markets go up. What the market to long term, they go up

Ratings and Reviews

Ling Fan
 

Great class! Concise and powerful! Wish I knew this 10 years ago.

Kennie Johnson
 

Very helpful and inspiring

Carlos Figueiredo
 

I thoroughly enjoyed the course love it!

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