MOST OF US DON’T attempt to make a living trading stocks. Instead, investing is a long-term effort. We’re accumulating wealth to sustain us in retirement. Well, at least some of us try. To that end, we need to save regularly over many decades, reinvest interest and dividends, and keep our eye on the pot of gold at the end of our rainbow. How come we find this so hard? We get distracted. We start thinking short term. We pay too much attention to our investments. Yes, I said it, too much attention.
Americans are not good at long-term thinking. Years ago, when I oversaw company 401(k) plans, an employee’s account balance was updated four times a year. Then we moved to monthly updates and, ultimately, we were seduced into daily valuations. Our mindset went from long term to immediate. Workers began worrying about daily stock market changes. Many started thinking they could beat the market, they began acting on investment tips or—all too often—they simply threw out any long-term strategy in reaction to bad news or market declines.
To make matters worse, we added a brokerage option to the plan, where investors could buy individual stocks. Investments and trading were then unlimited. We had one employee who was especially successful. He traded daily between the stable value fund and the plan’s international stock funds, based on how foreign markets would likely react to that day’s U.S. stock market action. This was before the advent of fair value pricing. He accumulated $2 million in a relatively short time, but the mutual funds then complained about day trading, prompting us to impose a 90-day fund transfer limit for the stable value fund.
I must admit, though, I wish I’d thought of the strategy. Most employees who attempted to beat the market with short-term trading weren’t so fortunate. Heck, most didn’t know what they were invested in or why. My favorite: The folks who were in a target-date retirement fund designed to provide one-stop shopping—who then went and bought several other mutual funds.
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Source: Do as I Don’t – HumbleDollar