We know that most people don’t invest the way they should. They follow their emotions, their favorite stocks and chase high past performance funds, with disappointment as the result. ‘How often and when’ you check your investment performance has also a lot to do with their underperformance. And maybe a sign that you are not getting the best of your investing.
The below chart represents the annual returns of the S&P 500 (that represents the largest and most well-known companies in the US) since 1928. As noticed, the annual returns are very similar to sharp saw teeth with reversals and ups and downs. If you check your performance on the annual basis this is what you’ll see.
As much as one can say they invest for the long term, many investors shoot themselves in the foot by looking at their performance during the short run, making emotional decisions, changing their plan and eventually not reaching their goals. The stock market with its volatile characteristics doesn’t help either.
Most investors don’t reach the long-term returns of the markets primarily due to the behavioral mistakes that they do. The stock market is volatile over the short run and most people act on what they see and feel, and that doesn’t help them over the long run.
On our following set of posts, we’ll see how the market becomes less volatile as time increases and how we can use this knowledge to our advantage.
