Ben’s 4 Common Sense Rules of Investing

As I’ve gotten older the part of pop culture where I’ve fallen behind the most is music.

There aren’t many new artists I like so I mostly end up listening to older music.

There could be a get-off-my-lawn nostalgia thing going on here but the data shows I’m not alone.

Ted Gioia crunched the numbers and the results are astounding:

Old songs now represent 70 percent of the U.S. music market, according to the latest numbers from MRC Data, a music-analytics firm. Those who make a living from new music—especially that endangered species known as the working musician—should look at these figures with fear and trembling. But the news gets worse: The new-music market is actually shrinking. All the growth in the market is coming from old songs.

Old music is dominating new music these days.

As with most problems, there probably isn’t a single root cause for this.

People didn’t have the ability to listen to the full catalog of music in the past so streaming and technology definitely play a role here.

Maybe the music people made before is just better than what’s being put out today. Or it could be a lull in creativity at the moment that will go away eventually.

People also have so many more entertainment options at their fingertips these days that there’s simply more competition.

And sometimes…you just have to play the hits.

This is true in the life of a long-term investor as well. You don’t need to get creative. Novelty causes more problems than solutions for your portfolio.

Sometimes I like to provide myself with simple reminders because it’s not always easy to stay the course when the world around us is so confusing all the time.

Here are four common sense reminders that guide my general philosophy about investing over the long haul:

(1) Stocks usually go up.

A lot of people were confused when stocks just kept going up in the bull market of the 2010s.

We lived through two separate 50% crashes during the first decade of this century so plenty of investors began to question stocks for the long run.

Over the past 100 years or so, the U.S. stock market is up roughly 3 out of every 4 years on average.

Almost 60% of all calendar years have seen gains in excess of 10%. More than one-third of all years have experienced returns of 20% or more. So you’ve been more likely to gain 20% or more than experience a down year in that time.

Corporations like making profits. People like innovating. Money has to go somewhere and people like the returns they get in the stock market.

So most of the time it goes up.

(2) Sometimes stocks go down.

The stock market does go up because of profits and innovation and human ingenuity and all of that stuff but it also goes up because sometimes it goes down.

Humans are emotional. We’re irrational. We make dumb decisions at times. We change our minds. We take things too far. We’re volatile.

So the stock market shares all of these characteristics too.

The combination of money, greed, fear and uncertainty about the future means the stock market has to go down sometimes.

Short-run losses in the stock market are an unfortunate byproduct of long-run gains.

(3) The world never actually comes to an end and if it ever does it won’t matter what your portfolio looks like.

This is the life of a permabear:

Wrong, wrong, wrong, wrong, wrong, right, wrong again, wrong, wrong, wrong, wrong, right, wrong again, wrong, wrong, wrong…you get the point.

All of the people trying to make a buck off of scare tactics calling for the fall of Rome, an end of the financial system as we know it, the destruction of the dollar, hyperinflation and such are always wrong.

And even when they’re “right” it’s usually for the wrong reasons.

Here’s the thing though — even when we have crashes, deep recessions and geopolitical upheaval the world doesn’t actually come to an end.

Things usually work out.

And if they don’t work out, you’ll have bigger problems on your hands than the Sharpe ratio of your portfolio.

(4) You have to invest in something.

Investing involves risk. And risk never completely goes away no matter how hedged you think you are. Every investment decision you make is simply a trade-off from one risk to another.

The problem is when you combine risk with a future that is inherently uncertain, investing is not always that much fun.

Invest? In this economy?! What about inflation? What about the upcoming election? What if there’s a recession? What if the dollar loses global reserve currency status? What if interest rates keep rising? What if there’s a housing market crash? What if the stock market rolls over again?

You could play this game forever in any market or economic environment and talk yourself out of the game.

There is no single way to invest that will guarantee success or the results you would like.

But there is one way to guarantee terrible results with your life savings — don’t invest your money. If you just keep your savings in the bank or bury it in your backyard, you don’t have to worry about all of the risks that are a feature of the stock market.

You’ll also crush any chance of increasing your wealth over time.

There are always going to be scary headlines and intelligent-sounding narratives about why the world is coming to an end.

My strategy is to continue saving and investing and following my plan no matter what the market is doing.

None of us controls what happens in the market.

But we all have control over how much we save, how we allocate our assets, how often we check the market value of our portfolios and how we make intelligent investment decisions.

You focus on what you can control and let the chips fall where they may.

Further Reading:
The 20 Rules of Personal Finance

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