I’m a Terrible Investor and So Are You

George WashingtonThe Dow Jones Industrial Average is at over 19,000, its highest ever.  Everyday there seems to be some bad news that will lower the stock market, but it continues its march to new highs.  Trump elected, big drop followed by super massive positive streak.  Then Italy votes against current government consolidation which may be another domino to fall for the EU, but the market decides higher it is.  Meanwhile, I am convinced that the market is overvalued, but this is speculation on my part.  I certainly don’t know what the market is going to do, but I’m making my investments as though I do.  That means I am my own worst enemy.  Right now I’m not participating in the significant gains, but instead earning .95% in my savings account.  I’m young, so now is the time to start investing because my money can compound, so what is the problem and solution?


Since turning eighteen the market has doubled, however my initial money has not.  I decided to pick certain stocks, sell too early, buy low quality stocks, and pay lots of transaction fees.  All this lead to greatly reduced returns.  It is easy to win when the market is going up and people will think they are doing a great job, but when it goes south people freak out.  The 2008 crisis made the market drop 40% and I bet there were people that sold all the way down and decided that stock was too risky.  However, since that bottom the market has almost tripled, more than erasing any losses.  In the long run the market has always gone up and I anticipate this going forward though perhaps at a slower rate.  As one person I met with last week put it, the market is not made for human trading.  You may not have had breakfast, feeling tired, or decide to sell your stock before going on vacation.  However, a computer is told what to do and will not let emotions get in the way of executing that plan.


Since you can’t trust yourself you have to come up with a plan that takes yourself out of the investment equation.  In order to do this you can stick with indexing, robo-investing, or a professional money manager.  A manager will charge you a percent or more.  Over many years this will mean tens of thousands less in returns available to you, so I’d stay away from that as well.

Index funds

Indexing is where you put your money in fund  which holds a huge basket of stocks so your portfolio does what the market does rather than just a few stocks and is therefore safer.  You can do this in any type of account you where you can own stock and funds.  However one company which is committed to always lowering fees is Vanguard.  They are the leader in indexing and I would recommend an account with them to get very low fees and a company committed to you.


Robo-investing is trusting your money to a company that charges a low-fee and holds index funds as well.  The benefit to this is that they will choose the funds for you based on your risk level and other factors you pull in.  Always read about the fees to know what you are paying.  I use Wealthfront and another popular one is Betterment.


Despite the solutions available to you, you will still need to practice restraint.  You are free to take money from your accounts (assuming it isn’t a retirement one) and that means you could try to play the market as well, but statically you are going to lose.  In order to retire early one must partner with the market (or other money-generating asset) to make returns to live on, so it is best to get comfortable with keeping your money in the market even when it seems terrible.  As for me, I’m keeping cash for now since I’m going into a transition and may need the money so I don’t want to be forced to sell low.  However, for others, if you have money to invest for a long time make sure you are not putting it something with high fees.  Good luck and be patient.

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One comment

  1. Biglaw Investor says:

    Yes, you can’t try to time the market. You won’t win. I recently wrote an article called “Time In the Market, Not Timing the Market” which lays out my case for why you should jump in.

    When you say you’re keeping cash for now since you’re going into a transition, do you mean that the money isn’t for long term retirement? I have a much smaller fund set aside for shorter term issues (some might call it an emergency fund) as well as separate savings accounts for things like car purchases and a home downpayment.

    That makes it pretty easy to leave the stock investments alone, most of which are in retirement accounts as you pointed out anyway.

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