Monday, December 18, 2006
Beating not meeting the market
Beating not meeting the market
To advance in society an individual must beat out the other members of society and move faster. If inflation is 2% per year and I’ve my money earning just 1.5% per year I am falling behind. Inflation will eventually eat up the majority of my capital, leaving me with essentially nothing.
The mindset is, any gain is gain enough. But this is untrue. Investors have no worries when the market excels at 15% but their portfolios earn just five percent. But when you inverse this, the overall market loses 10% but the portfolio of the investor above loses just 5%, the investor goes insane. How could he or she lose so much money?
In reality the investor who loses less than most people fares better than the investor who earns less than everyone else. The investor who lost less has essentially earned because everyone else lost more money.
Be a frugal investor and know that beating the market is more important than the overall percentage gains or losses. Without the rich, you’ve no poor and if everyone is equal, everyone is poor.
While beating the market with positive gains year to year is a surefire way to a great retirement and financial wellbeing, the returns arent the most important parts.
Do not complain when your investment manager loses 3% but the average was a 20% loss but you should complain when your returns account for just 10% when the average earns 30%.