Investing is a long term game. You know it, I know it, in fact I don’t think there is an adult in Australia that hasn’t heard it at some point in time.
So why is that during periods of any downward momentum in the stock market, investors are always wanting to run for the hills?
One reason is that the media loves headlines like “The Australian Stock Market Lost $45 Billion Today”, fear sells newspapers, gets clicks and draws eyes to the 6pm news.
Just take a moment now to consider when was the last time that you heard or saw a headline like “Australian Stocks Gained $20 Billion Today”? Probably never. The reason being good news doesn’t sell and a headline of stocks up 1.1% is much more succinct.
This week is the perfect example, our market has pulled sharply back from an all time high following more negative trade talks.
Most likely, this is going to be like the 2 other times this has happened this year where we see some scary headlines for a day or two and then the market stabilises and recovers.
Let me explain why I am telling my clients to stick with their long term investments despite the hiccups that we saw at the start of the week and frankly, will continue to see in investment markets forever.
Let’s imagine we decide to do a road trip from Melbourne to Cairns, just you and I, the wide open road and a rocking Spotify playlist. Sound pretty great?
We pull out of our hotel of Collins Street and what are faced with? Inner city gridlock.
Nothing but still cars as far as the eye can see. As you look around you see something moving up rapidly behind our car.
It’s a cyclist who overtakes us. Within moments we have been overtaken by dozens of cyclists.
Surely the smartest move is to jump out of our car, sell it on the spot for whatever we can get for it and buy a bicycle?
After all, they are doing so much better than we are at the moment!!
Now we all know that for a 3,000km long journey it is going to be much quicker (and more comfortable) to drive than cycle.
Yet if we were to ignore the long term and focus only on the short term that is exactly what we would do!
In this situation, rather than sell our car obviously the better decision is to blast the A/C and turn up the music until we can hit the open road.
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