The worse and more complex the news in the world, the better you ignore it and not think about it, because this will benefit you in many ways especially if you are thinking of investing.
In his article, published by the American newspaper “The New York Times”, author Jeff Sommer highlighted the most important advice provided by Richard H. Thaler, a writer specializing in economics and a Nobel laureate, on how to invest in the long-term even in the midst of a pandemic. turmoil that shakes the world.
The writer believes that ignoring the importance of the brutal Russian invasion of Ukraine at the present time and ignoring the suffering of Ukrainians just because the facts on the ground are very disturbing, is not a good thing, but on the contrary, it is recommended to help the victims as much as possible while taking a distance from the news to avoid its consequences for us.
According to Thaler, we can follow the news of course and interact with it, but we should not let it influence our investment decisions, so you must be calm and follow the initial investment plan, and if you do not have a good plan, then you should create one without being affected by the situation.
“The thing I see is that we know that any sudden moves by individual investors will certainly be more right than wrong, and any move by investors may be more wrong than successful, because our instinct is to sell when the markets are down,” says Thaler. Buying when it goes up, buying high and selling low is just not a good strategy.”
The writer stated that entry and exit from the financial markets depends primarily on “market timing,” as the terminology says, and it is impossible to do this step well consistently and over long periods, as much academic research has shown.
Professor Thaler was quoted as saying that you just have to stick to your plan and stick to it and not think that you are a genius and you can beat the market, because you probably can’t.
The writer pointed out some basics for forming a good plan:
Start with an emergency fund
First, set aside enough money for emergency appeals. According to Professor Thaler, simply storing some money in a checking or savings account or buying inflation bonds is ideal for this because it is very safe and in a real emergency, you can liquidate it.
Diversify with low-cost index funds
When you’re really ready to invest, use low-cost index funds as your primary holdings. Prof Thaler said most people should plan to invest for decades, even if you’re about to retire, as people in their 60s have many years of life expectancy.
The writer pointed out that the markets are now global despite the wars and trade conflicts, so holding global stock and bond funds is probably the best approach.
Allocation of assets and risks that you can deal with
The next step is figuring out how much can be kept in stocks and how much bonds, as there is no one-size-fits-all answer, but as an older investment proverb says, there are no returns without risk, and historically, stock returns more than bonds precisely because there are risks Greater to own.
The writer points out that historical returns do not provide any guarantee for the future, but they may serve as evidence, as the publications of the “Vanguard” group are rich in information, covering 9 portfolios of stock bonds based on American index funds from 1926 to 2020 .
For example, the worst year for the stock index was 1931 when it lost 43.1% and the best was in 1982 when it rose by 54.2%, and the worst year for the pure bond portfolio was 1969, when it fell by 8.1%, the best was also in 1982, With a gain of 45.5%.
The writer concludes by saying that if the current decline in stocks is really affecting your life, you may be holding a very large stock, but try not to let the news reach you. You should not only sell when you are worried and only buy when the market is rising, this is not a plan but a problem.
