“We believe in experts in the same way that our ancestors believed in oracles.” – Philip Tetlock (Author)
I read an article recently on one of the popular personal finance sites that essentially asked “Where to invest now?” This is a very common theme. Everyone is looking for “expert” advice about what to invest in today. In reading the piece, the author described very short-term concerns and constraints. He concluded that he continues to hold cash “waiting” for the right time. Some might call this “analysis paralysis.”
The line of reasoning represented by the “wait and see” approach to investing is mired in a mis-understanding of the role time plays in crafting an investment strategy. After our first couple years of life (where some might refer to age in months), we refer to someone’s age in years. We say we are 40 years old, not 14,600 days old. Our accepted frame of reference is years. We should take the same approach with investing. Trying to determine where to “invest” for next week, next month, or even next year is not really investing. It is speculation.
If we adopt the “years not days” approach to investing, it will insulate us from reacting to short-term market movement. The main purpose of investing is to help prepare financially for something in the future. This simply can’t be done without matching the time horizon of the goal (usually years into the future) with the investment strategy (which should also be years into the future). Give it a try – think of investing for years. The peace of mind that comes from not worrying about all the market noise will be uplifting.