The world’s stock market index and the S&P 500 have gained roughly 5% during the past three months, to April 18, 2012.
Depending on your age, and your response to the gain, I can tell whether or not you’re an astute investor:
If you’re employed, below the age of 50, and you’re happy to see the markets rise, then you probably don’t understand how investing works. And that’s a shame. Investors are collectors. And while you’re collecting assets, you shouldn’t celebrate when those assets rise in price while you’re stockpiling them.
If you’re like most people who celebrate rising prices, you’ll buy when you’re happy and shift your money when you’re sadly disappointed. Writing for Barron’s, Martin Conrad wrote in The Money Paradox that the average investor made just 1.9% per year from 1988-2008, while the average actively managed mutual fund made 8.4% annually. If you’ve read my book, Millionaire Teacher, you’ll know that an indexed strategy is far better than investing in actively managed mutual funds, but that isn’t the point of my argument here.
An investor’s behaviour is far more crucial than decisions based on what funds or stocks they buy.
While the world’s stock markets were sinking in 2011, I bought nothing but stock indexes with my monthly savings. I even sold $50,000 of bonds to add to my stock component, on October 20th.
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