As the Times Square ball went down in 2022, so did the market.
That may sound terrible, but it’s a fee you have to pay to realize the long-term return on your investment.
But did the market decline affect you more than it should?
Market declines are good for three things: they improve expected future returns for investors, they buy investments if they have the cash, and they expose our fears and greed. That’s it.
Now let’s focus on the third part: How can we understand our fears and greed and focus on why we invest in the first place?
Ultimately, you can either spend the money or donate. Every dollar you spend will be used by you in the future or by others, such as charities, friends, family, or the government.
Your investment increases or decreases until you use it. If you want to take a lot of risk, you need a big swing in your investment. If you’re diversified enough, you still have a swing, but it’s less dramatic.
How you manage yourself during these swings is an important investment lesson.
All investors experience regret. Either you didn’t buy enough of what went up, or you bought too much of what went down. But regret is not a lesson.
The regret of not buying enough bitcoin when bitcoin is soaring is nothing compared to what I felt when bitcoin was going down. Now you are playing the game of buy more, sell when you hit a certain price, or walk away. The question to ask is how did you get on the roller coaster. Hint: maybe greed was involved.
We may explain our decisions analytically, but they usually start out emotionally. A friend made a lot of money in cryptocurrency and explained why.
Some people get lucky and get rich quickly, but getting rich slowly is much more predictable.
But it’s for ego’s sake to focus on getting rich. The idea of investing is to get the money you want to spend when you want to spend it. But this is mostly about distinguishing between wants and needs.The less you want, the less money you need. By managing your desires, you can start a better 2023.
Live your life wisely.
Ross Levin is the founder of Edina Accredited Investor Wealth Management. He can be reached at ross@accredited.com.