Investors are constantly bombarded with negatives these days. Everywhere you look there’s someone telling you why you can’t invest in certain asset classes or strategies:
You can’t invest in the U.S. because the bull market is getting long in the tooth.
You can’t invest internationally because those countries are a mess and what about the Japan scenario and the possibility of catching a falling knife?
You can’t invest in bonds because interest rates are so low and they’re sure to rise.
You can’t invest in bond substitutes because those investments are far too risky and require something of a chase for yield.
You can’t invest in different risk factors or smart beta strategies because everyone already knows all about value, momentum, quality, dividends, low volatility and such so factor investing is not going to work anymore.
You can’t invest passively because everyone else is now investing that way and they’re bound to be disappointed.
You can’t invest actively because it costs too much and it’s too hard to beat the market.
You can’t use technical analysis because it’s only focused on the past.
You can’t use fundamental analysis because it’s hard to predict the future.
And I get it — loss aversion is a powerful force and investing is hard.
I’m a huge proponent of negative knowledge and avoiding huge mistakes. I spent an entire chapter in my book talking about this subject. But at a certain point there’s only so much stuff you can get rid of before you have to take a leap of faith and take some risk with your capital.
Sure, you could sit in cash, but that’s a short-term solution to a long-term problem. Eventually you have a have a plan and you have to do something if you expect to beat the rate of inflation over time.
Morningstar recently asked Vanguard’s John Bogle about China, brexit, the U.S. presidential election and all the other things people are worried about these days. I love Bogle’s response:
Well, you can only control what you can control. I think whatever your view of the world is, you have to invest. You can’t put the money in the mattress and in this day and age of low interest rates, you can’t put it in the money market fund or a bank CD, so invest, you must. Now, you might want to invest regularly. For people that are investing regularly, I would say for god’s sake don’t stop investing now. I know the market is not doing much this year, just about where it started a little bit down, but not much and bond yields are still very low, actually lower than they were at the beginning of the year, but you have to put your money to work. The alternative is – I mean, the only way to guarantee you will have nothing at retirement is to invest nothing along the way. So, you have to take your chances.
Yes, risk exists in the markets. It’s never going to be easy. But the alternative for stepping out into the unknown is the known of never building your wealth. Don’t invest. Don’t save. Allow fear to control your financial decisions. Stay far away from the markets. That’s a great way to ensure that your future self will hate you.
Even a mediocre plan is better than none.
You have to invest.
When Mediocrity Trumps Brilliance