In a matter of weeks, I saw my portfolio erode at a rate that I thought was only possible in months/years instead days/weeks. The other day, I was looking at the disastrous performance of my stock investments through financial statements and asked myself one question: “Did I make a financial mistake by investing in stocks this year?”
These “after-the-fact” type questions usually does nothing but make me feel worst but I felt the need to give an honest attempt at answering because being invested this year was by far the most detrimental to my wealth.
As my thoughts race through my brain, the answer became increasing clear to me that starting to invest in stocks was not a financial mistake. The decline was definitely something I wish I avoided, but to call it a financial mistake was just not correct.
To carry on the discussion further, let me share with you some of the notes I took in my imaginary wall:
We Decide Based on Possible Outcome, Not Results.
When I chose to pour my savings into the stock market, it was based on the rational decision that:
- Stocks outperformed other asset classes in any 20-year period
- I was young enough to have many years of income to cover any potential losses
- My time horizon was long
Due to the fact that we can’t predict the future and there’s no “undo/retry” in life, we decide the path to take based on all the facts present. My investing approach was based on past history and my circumstances. My wealth took a disastrous dive but short term performance was simply not part of my consideration. I’m looking for long term gain, and these types of short term decline was what I was willing to tolerate and should be expected.
I Actually Made the Choice
Indecision is always the worst mistake that one can make. If I did not decide to begin investing during the good times, there would be no way that I would start now when everything looks dark and gloomy. As a result, I may never start investing. It would preserve my capital this year, but earning 3% a year (and being taxed every single year) is definitely not advisable over the long run.
What I Do Consider a Financial Mistake
Let’s face it, many of us lost more money this year than any other. However, financial mistakes should be left for those decisions that we make when the facts points to the likelihood of financial disaster (Taking payday loans, splurging on credit cards without the funds to pay them off immediately, buying a new car just to keep up with your neighbors etc come to mind).
Deciding to start investing in stocks will never be a financial mistake. Ever.