As Investors, We’re Often Predictably Irrational

Plenty of new investors say, “I have a lump sum, but I’m afraid to invest it all today because the markets aren’t predictable.”

Such investors don’t realize that “waiting” to buy is the same as somebody else selling everything… and waiting to re-enter the market.

Sounds crazy, right? Sure it does.

But we’re predictably irrational.

Image by Pixabay

I explain it here

worlds best value financial advisor

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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5 Responses

  1. BW says:

    I’ve just read your Millionaire Expat book and it is an excellent read. I was just about to start investing in Vanguard low cost index funds and then I found a book called “The end of indexing” (ISBN: B07B9HQN9S) which I haven’t read yet but from what I have read in the summary it says that passive investing in the future won’t work anymore due to new trends. Is this book nonsense or are things changing according to this book?

    • Hi BW,

      I haven’t read the book so I can’t specifically address its points. However, it looks like it was written by an investment banker. Such a person has an incentive to deprecate index funds in favour of active management. After reading my book (especially after seeing my reference to the Nobel Prize winning economist’s paper, The Arithmetic of Active Management) you’ll understand that the sum of all professional returns must equal the index’s returns, before fees. That’s as irrefutable as gravity because just 14% of the world’s investment money is indexed; 86% is actively managed. I might have addressed one of the author’s points in pages 236-238 of Millionaire Expat. One of his other likely points would be addressed if you did the following:

      You need to build a diversified portfolio of stock and bond indexes, and rebalance it once a year. When stocks fall hard, indexes (and actively managed stock funds) will fall hard. That’s why you need to rebalance, and to do so, you must be diversified into bonds as well.


  2. BW says:

    Thanks for the helpful reply Andrew. I’m on my way to start using index funds for my retirement!

  3. Barry says:

    Would your age not be a consideration i..e Younger accumulator with lots of time left vs someone approaching or in the early stage of retirement
    Consider selling as you approach retirement and want to reduce volatility ( reduce sequence risk) by buying more lower risk assets – E.g bonds / cash.

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