This is a great article by Nick Maggiulli: https://ofdollarsanddata.com/the-broken-clock/
It’s interesting that respected commentators can be so wrong so often yet still command huge audiences. It says a lot about how our brains work.
Our need for an answer – any answer – far outweighs the need for that answer to be remotely correct.
Being told, confidently, “This is what will happen” is far more attractive than hearing “Who knows what will happen?”.
Our work as empathetic financial planners of integrity is to provide a better, more helpful truth.
And here it is:
- Your portfolio consists of X units;
- Worth Y pence per unit;
- Giving a total value of £Z.
The Y pence and therefore the £Z change every day.
The X number of units you have is stable. It increases when dividends are reinvested. It reduces when we sell some to cover future cash needs.
Let’s add some numbers: If you own 100,000 units worth 100p each, your portfolio is valued at £100,000.
If the unit price drops to 60p (as it is prone to do every 3-5 years) then your portfolio drops in value to £60,000. BUT:
- You still own 100,000 units.
- You own the units not the value of them.
- Therefore, there is no loss.
You own today what you owned yesterday, and you can keep owning them tomorrow. The only way you can possibly realise a monetary loss is by selling a unit at less than the price you paid for it.
Happily we know that, historically EACH AND EVERY drop in the price of your units has been temporary.
Your units have ALWAYS recovered to their previous price AND THEN GONE ABOVE AND BEYOND that previous price.
It was true yesterday, it’s true today and I’ll bet you anything you like it will be true tomorrow. Anything.
But this truth is incomplete. We must also state clearly that we have NO IDEA how long the price will take to recover but we know IT WILL.
Any denial or deviation from this truth, whether inspired by a human or a hamster, is a step towards financial ruin.
It turns out Robert Kiyosaki wasn’t right, there was no “giant stock market crash” in October. In fact the Large Company investment (that represents the largest stockmarkets and companies in the world) was up just shy of 3% in October. That’s a churlish point to make of course, one day Robert and others will be right.
However, armed with our better truth we understand the complete irrelevance of that.
We exist on a higher plane than Robert and others.
We accept a truth they can’t because it doesn’t serve their interests.