There’s always a new kid on the block, a thousand and one different opinions, and of course a ton of “market reports” on what’s good to invest in at the moment, or for the short haul. Lionel Yeo explains why you should be wary of always looking out for the flavour of the week (month, year, whatever).
One of the side effects of being a personal finance blogger is that relatives love asking me for financial advice.
This Chinese New Year, about 20 uncles and aunties asked me “so what’s good to invest in right now?” in between mouthfuls of prawn rolls and bak kwa.
What’s good to invest in “right now”? I have absolutely no idea.
Of course, if you’ve been following cheerfulegg for awhile now, you’d know that I believe stocks are the best assets you could own for the long run, beating anything else you could possibly think of:
- Bonds (can’t beat inflation),
- Gold, commodities (no intrinsic value)
- Insurance endowment plans (do you really wanna fund your financial planner’s new Mercedes?)
- Wild hogs (too smelly)
Trendy Doesn’t Mean Smart
But a “long-run” answer just isn’t interesting to people who’re only interested in “right now.” As a society, we love the concept of “right now”. Akon probably calls his financial advisor every week to ask, “I have $10 million dollars. Where should I invest it Right Na-Na-Na?”
Right Now People only want to hear about the latest shiny tactic or hot stock. They surf Yahoo Finance for the “top 10 stocks to look out for in 2014!” They listen to their financial planners and jump into Russian infrastructure funds or Australian small-caps, because “they are poised to take advantage of the Fed’s tapering this year!!” (I just pulled that economic argument out of my ass).
But you know what? To average investors like you and I, these trendy assets don’t matter. Maybe a specific sector might take off this year, or maybe it won’t. Who cares?
If we own the entire stock market, we can take part in the performance of the long-run performance of stocks as a whole, which, as history tells us, is pretty awesome. It also gives us a more reliable performance than any other sector or asset class.
What We Say vs. What We Do
It’s interesting how many people claim to be long-run investors, yet their behaviors show otherwise.
For example, an uncle asked me what was good to invest using his SRS account. (I’ve blogged about SRS accounts before here). Remember that you can’t remove your money from your SRS account till you’re 62, so this is a true long-run account.
When I suggested buying a Straits Times Index ETF, he wrinkled his nose and said, “But look at the market right now! It’s performing so badly!” (Or if he had asked me this question two months ago, he would have responded, “But look at the market right now! It’s so expensive!”)
But if you think about it, is that argument really valid? If you can’t cash out of your SRS account till you’re 62 anyway, what difference does it make whether the STI goes up or down next month?
It’s interesting to look at people’s responses and examine them for codewords. Phrases like “the market’s been performing so badly lately” or “I’m just too busy to watch the market” are simply code for “I want to put this off till later.”
Which is why so many young people don’t start investing until it’s too late!
If we’re in this for the long-run (and I believe the average investor should be, because we have no business dabbling in short-term trading), then the obvious thing for us to do is to pick the best-performing long-run asset – Stocks – no matter how it’s doing “right now.”
What are some of your thoughts on cherry-picking investing? Are there some merits? Let’s hear your thoughts here.
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