Here are four common sense reminders that guide my general philosophy about investing over the long haul:
(1) Stocks usually go up.
We lived through two separate 50% crashes during the first decade of this century so plenty of investors began to question stocks for the long run. Over the past 100 years or so, the U.S. stock market is up roughly 3 out of every 4 years on average.
(2) Sometimes stocks go down.
The stock market does go up because of profits and innovation and human ingenuity and all of that stuff but it also goes up because sometimes it goes down. Humans are emotional. We’re irrational. We make dumb decisions at times. We change our minds. We take things too far. We’re volatile. So the stock market shares all of these characteristics too.
(3) The world never actually comes to an end and if it ever does it won’t matter what your portfolio looks like.
(4) You have to invest in something.
Investing involves risk. And risk never completely goes away no matter how hedged you think you are. Every investment decision you make is simply a trade-off from one risk to another.