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Go Long

Dennis Friedman  |  October 14, 2020

WHEN I WAS growing up, I don’t remember my parents talking about the stock market. In fact, I’m not sure when they started buying stocks. It could have been sometime after I graduated from high school in 1969.

When I was a junior in high school, however, I do remember a conversation about stocks between two of my classmates. Brandon was telling Brian that he could buy a motorcycle if he sold some of his shares.

I wasn’t surprised that Brandon owned stocks at the young age of 17. Both Brandon and Brian lived in Ladera Heights, California. It was a wealthy community back then and it still is today, with residents that include celebrities and highly paid sports figures. Some of my classmates from the area drove new Chevrolet Camaros, Plymouth Roadrunners and Ford Mustangs to school.

I never envied the Ladera Heights kids until many years later, when I wondered what happened to Brandon’s stocks. Did he still own them? Did he sell? Were they blue chip companies that are still trading on the stock exchange?

If he held on, just think how much those stocks might be worth today. All that compounding over many decades. At age 17, Brandon was sitting on a potential goldmine. But I suspect he sold long ago, displaying the sort of short-term focus that often hurts stock market investors.

Want to be more tenacious? Here are seven recommendations:

  • Invest in a target-date fund. You’ll have fewer decisions to make, and that’ll encourage a more hands-off approach to investing that can lead to better performance. According to BlackRock, target funds “may also soften the downside of tough markets—especially as retirement appears on the horizon.” The funds offer a diversified investment portfolio in a single mutual fund, with a stock-bond mix that grows more conservative as you approach retirement. The funds also continuously rebalance their asset mix—something investors often fail to do on their own.
  • Favor mutual funds over exchange-traded funds (ETFs). Yes, ETFs often have lower annual costs than index mutual funds. But they encourage frequent trading because their shares can be bought and sold whenever the stock market is open, while you can only trade a mutual fund once a day, as of the 4 p.m. ET market close. The legendary John Bogle once noted that turnover in the shares of SPDR S&P 500 ETF was 5,000% a year. “Is there anything the matter with that?” he pointedly asked.
  • Don’t invest in individual stocks. Prices of individual stocks can be highly volatile, making it harder to stay the course. Instead, invest in a target-date fund or a balanced fund, where share-price movements are less unnerving.
  • Turn off CNBC. Watching cable financial news can give you a short-term perspective on the stock market. The fixation on the minute-by-minute movement of share prices and interest rates, coupled with the commentary from financial pundits, can make your head spin.
  • Don’t listen to friends and family. Early in the 2000-02 bear market, I advised my sister to buy the dip, something I’ve long regretted, because it meant she bought at the beginning of a long ruthless downward spiral in stock prices. Where did I get that not-so-wonderful piece of advice? From an investment newsletter that I subscribed to at the time.
  • Don’t look at your investment portfolio. To be a tenacious investor, you need to take a long-term view of the stock market. Looking at the daily fluctuations in your portfolio’s value almost inevitably leads to emotional decisions.
  • If all else fails, get help from a low-cost financial advisor. Why pay for advice when you know how to manage your own money? What you know isn’t the only thing that matters. Instead, when it comes to investing, what also matters is how you behave. That’s one of the main reasons many investors underperform the market averages. With any luck, a good financial advisor will keep you from making costly behavioral mistakes—and, if you avoid those mistakes, the advisor’s fee could be money well spent.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include The Short GameIt Sure Adds Up and 11 Remodeling Tips. Follow Dennis on Twitter @DMFrie.

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