Tuesday, April 9, 2019

Staying invested

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Fees vs. Fines (Link)
Is market volatility a fee or a fine? Fees are something you pay for admission to get something worthwhile in return. Fines are punishment for doing something wrong. It sounds trivial, but thinking of volatility or drawdowns as fees instead of fines is an important part of developing the kind of mindset that lets you stick around long enough for compounding to work.

A reason market declines hurt and scare so many investors off is because they think of them as fines. The natural response for anyone who watches their wealth decline is to avoid future fines or market declines.

But if you view volatility as a fee, things look different. Returns are never free. They demand you pay a price, like any other product. And since market returns can be not just great but sensational over time, the fee is high. Declines, crashes, panics, manias, recessions, depressions.

The trick is convincing yourself that the fee is worth it. That, is the only way to deal with volatility; not just putting up with it, but realizing that it’s an admission fee worth paying.

Easy money
Since 2009 there have been numerous headlines telling us that the easy money had been made. Avoiding this market noise and staying invested through the drawdowns was hard. Only in hindsight does it look easy.