The Rip Van Winkle Investing Method
You Wish You Knew About
I always like to ask "what good is an investment plan if you can't stick with it?"
Meaning, the most important thing for people saving for retirement and college funding is to be able to stick with one's investments through both up and down stock markets. "Time in the market", as opposed to "
timing
the market"
Most everyone is a brave investor when stocks are going higher. But when we enter a bear market, investors' bravery often leaves them. This is why it is so important to invest your money according to your own personal finance needs. Your risk tolerance, time horizon, and financial goals are unique to you. Rarely is "getting the best return" a good financial goal because your risk tolerance is left out of the conversation. Earning the highest potential return based on your risk tolerance? That's more like it.
Investing would be a lot easier if we could all use the Rip Van Winkle method. "Rip Van Winkle" is a short story by the American author Washington Irving, first published in 1819. It follows a Dutch-American villager in colonial America named Rip Van Winkle who falls asleep in the New York Catskill Mountains and wakes up 20 years later, having missed the American Revolution.
If this was a modern day story, and if Mr. Van Winkle was was a stock market investor, he would've awakened to learn that he was a wealthy man; earning a return above the long term inflation rate. He wouldn't have made any impulsive investment decisions. He'd wonder what the big fuss was with all of the ink and electrons about wars, pandemics, recessions, and stock market volatility. He'd have the financial resources to enjoy a financially secure retirement. All because his emotions were dormant.
Certainly, none of us would want to lose 20 years of our life. But keeping your investor psychology under control would served you well. Investing is not easy precisely because we are emotional creatures. We have to live through so much volatility during our lifetime. Life is filled with opportunities to react emotionally at inopportune times.
Luckily, there are things we could do to help us keep our emotions in check when it comes to long term investing. This is why, as a financial advisor, I get to know each client's risk tolerance and their time horizon to their financial goals; to create their own version of the Rip Van Winkle investing method.
