Your investments: Achieving long-term financial success
Key to making money in stock market is not trying to outsmart market, but by investing broadly with a long-term horizon.
Israeli gold bullion coins Photo: Eli Gross/Keren Or
I recently met a very wealthy family that never used a financial adviser,
choosing instead to do their own investing based on what they described as
“getting good tips and then doing our own research.”
When I asked them
how they had done, they told me that they never achieved much growth in their
investment portfolio. After doing some more probing, they felt that investing
was easy (even though they had little success); they trusted their friends who
gave them the tips; and they didn’t want to pay fees that a financial adviser
would charge. So to save a few hundred or thousand dollars in fees, they ended
up losing literally hundreds of thousands of dollars in portfolio growth over
the last few years.
Warren Buffett, widely regarded as one of
the greatest investors of all time, tells investors that the best advice he can
give them is to know their limitations.
He means that investors should be
aware that their chances of performing better than the major averages are
statistically small if they pick individual stocks.
If professional stock
pickers aren’t able to beat their benchmarks, why do individuals think they can
do better? Over the long-term it’s extremely difficult to outperform the market.
In fact 90 percent of mutual fund managers are unable to beat the market on an
annual basis, how much more so on a long-term basis.
Don’t get too cute
Whether it’s trying to “outsmart” the stock market by trying to find some kind
of cute reason that no one has ever thought about, or the fact that individuals
tend to panic when the market drops and they sell their stocks and then only buy
back once the market has recovered (the opposite of buy low and sell high),
there is plenty of research that shows that individuals who try and time the
market buy frequent trading, tend to under-perform board market
The key to making money in the stock market is not trying to
outsmart the market, but by investing broadly with a long-term horizon. Not to
overdose on clichés but there is another famous investing saying: “It’s not
timing the market, but time in the market,” which is the best way to build
One is not going to build wealth buy simply
investing a small sum and hoping to keep hitting home-runs. You’re not going to
keep finding the right stocks and double your money. Anyone who promises this to
you is unethical.
There is no shortcut to building wealth. You need to
start investing, and with discipline, keep depositing more money and with the
wonders of compound interest and the growth of the stock market, over time you
will create a comfortable nest egg.
It takes time
We just read in the
weekly Torah portion how the Children of Israel were punished and forced to
wander the desert for 40 years. The question is asked why they had to wander for
40 years: Couldn’t Hashem have brought them in immediately? The Malbim answers
that they weren’t ready. In Egypt they had reached the lowest level of
It wasn’t possible for them to suddenly become so pious
overnight, as their travails and mistakes in the desert proved. They needed time
to slowly purify themselves. Only then, would they be ready to enter the Holy
The same holds true for investing. It’s virtually unheard of for
someone to accumulate wealth overnight; rather it’s a process that takes many,
The key to long-term financial success is to start investing
as soon as possible and stick to a plan.
Aaron Katsman is a licensed financial adviser in Israel and the United States
who helps people with US investment accounts.