Discussing the Laws Of Investing, Part 1

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Today’s Question:

Stop to consider why you do what you do. Now, consider why you make the financial decisions you make. Are you following these laws of investing (knowingly or not)? This is part one of that discussion.

Confidence Corner

Ever wonder if the way you invest and the reactions you have is common or even recommended? What are some of the foundational reasons behind your investment strategy?

For the next few episodes on The Financial Answer, we will discuss investing, particularly in regards to an article titled “The Laws of Investing” by Morgan Housel. In it are 17 laws (which are really more like guidelines or behaviors) that spark some interesting conversation as we consider the implications. (You may want to see the article for yourself in order to follow along.)

To start, Housel says both optimism and pessimism are easy to overshoot. Have you ever panicked at the first sign of danger? Or thought you were more prepared for something that totally caught you off guard? It’s a lot easier to see and understand things in hindsight. But if you look at today and you are fearing some volatility, ask the right questions. How was your plan set up and will it be able to weather some volatility if needed? And remember: the best plan for you is not always the best plan for somebody else.

Now think past some potential volatility and consider your long-term plan. You can’t let past or possible market crashes and bubbles to cause you to be cynical. The way to wealth is typically achieved over the long-run. So, take a second to understand things and take a deep breath. Then, invest and diversify. Keep in mind, stability may seem appealing, but that can sometimes be just as destabilizing.

While there are 17 laws defined by Housel, we hope by covering the top two you’ll be more aware of your own investment behaviors. And join us again next week for more!

Listen to the entire episode to hear more about the “Rules of Investing” or click on the segment below to hear a specific portion of it.

[2:26] – “The Laws of Investing” has many topics worth considering based on a number of theories about investing.

[4:31] – These influences can have an impact across all investment sectors, this is really about human behavior.

[7:02] – You have to diversify your portfolio.

[7:43] – Law #1: Optimism and pessimism is always going to overshoot.

[8:57] – Volatility will always be there, so don’t let it scare you.

[11:26] – Education provides a peace of mind.

[11:57] – Law #2: Calm plants the seeds of crazy.

[14:57] – Stability is actually destabilizing.

[16:22] – Understand the signs of a scary time, but know it doesn’t always lead to one.

[20:47] – People are worried about a recession, but looking at the data, being invested at the beginning of a recession, the returns are better than if you got out.


A Point Of Wisdom:


Related Content:

Laws of Investing PDF


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