Do you invest like you’re playing a game of Whac-A-Mole? Are you constantly trying to score points by anticipating when and where the next mole is going to pop up? As is often the case, maybe sometimes you’re too early or too late and miss out on scoring a point. In the same vein, are you constantly timing the markets to hit on a stock winner? But, as with most investors, are you constantly finding that you’re too late to the game or jumping ship too soon?
Are You a Market Timer?
In the latest round of market Whac-A-Mole, the two assets garnering all the attention lately have been NVIDIA stock and Bitcoin, both currently trading around record highs. As both continue to climb, investors who are still on the fence are wondering if it’s too late to get in (most likely), and the ones who are all in are wondering when the best time is to get out. The short answer is that nobody knows, but the one thing history has shown is that nobody is consistently good at timing the markets. You may score a point here and there, but in the long run, the average investor will not beat the market.
Timing the market is not a sustainable strategy for creating and sustaining wealth. It’s certainly not a strategy that sophisticated, ultra-wealthy individuals and institutional investors employ. Instead of taking a short-term approach, as with market timing, savvy investors prefer taking a long-term approach. Instead of anticipating the ups and downs in the short term, they prefer a long-term approach that climbs consistently and reliably while ironing out the short-term hiccups.
It may not be as exciting as a game of Whac-A-Mole, but using a more boring approach is a better way to sustain long-term wealth. Investing in stable and “boring” assets like cash-flowing real estate and private businesses offers more avenues for income and growth essential for building and preserving wealth.
The Predictable Unpredictability of the Markets
The stock market is constantly luring and tempting investors into investing in the next big thing. Don’t get me wrong. There are some true economic metrics behind NVIDIA’s stock surge, but based on experience, this growth is sustainable. Sure, the advancements in AI technology have fueled demand for NVIDIA’s GPUs, but as with most tech stocks that have experienced meteoric rises in the past, the hype will eventually fall back down to earth as well as the stock price.
Price rises and drops may be unpredictable, but if there’s one thing that is predictable about the markets, it is their unpredictability, and when the market drops, it can be both abrupt and severe. Bitcoin may be riding high at the moment, but let’s not forget the disastrous downturn in 2021 that wiped out billions in value within days. Investors who jumped in at the peak faced substantial losses.
Smart investors don’t let the emotions and irrationality of other investors control their portfolios. In liquid markets like the stock market and crypto markets, investors are often driven by fear and greed and are able to act on their irrational impulses due to the ease of buying and selling their positions. Investors ride an emotional roller coaster and often make decisions contrary to sound investment principles. Smart investors avoid riding on this roller coaster controlled by others’ emotions.
The Key to Wealth and Sanity: Invest and Forget It
Rather than attempting to time the market, smart investors adopt a long-term perspective. This “invest and forget” approach involves selecting solid, illiquid cash-flowing investments based on fundamental economic principles like supply and demand and holding them long-term. Holding these assets long-term generates cash flow that can be reinvested to build wealth and allows them to mature and appreciate in value independent of inflation. This long-term strategy is not only good for the pocket book as long-term returns are insulated through short-term market fluctuations, but it is also good for peace of mind as investors are freed from the worries of day-to-day fluctuations in value.
Why Boring Investments Are the Smart Choice
Real estate may not be as exciting as the AI-fueled demand for high-tech computer processors, but it will always be in demand. In the tech world, Intel may be surpassed by NVIDIA, but there will never be a replacement for housing since everyone needs shelter, which apparently is becoming more and more in short supply in one essential sector: affordable housing.
The U.S. housing market faces a severe shortage, impacting potential homeowners and investors. The National Low Income Housing Coalition (NLIHC) reports a deficit of approximately 7 million affordable and available rental homes for extremely low-income renters. This shortage, due to a variety of factors, extends beyond affordable housing, affecting middle and upper market segments as well, with tight inventories and rising prices.
Instead of predicting demand like playing a game of Whac-A-Mole, why not invest in something with already-established demand? Why play the guessing game by taking a short-term market timing approach?
Consider investing in something with a long track record of success and no end of demand in sight. Invest long-term in a reliable asset, and the rest will take care of itself, padding your wealth while freeing you from anxiety.
